Overdue credit card debt is at its highest level in more than a decade. If you are at risk, do the following

NEW YORK (AP) — Severely overdue credit card debt is at its highest level in more than a decade, and people 35 and younger are struggling to pay their bills more than other age groups.

The share of credit card debt that is seriously delinquent (defined as more than 90 days past due) rose to 10.7% in the first quarter of 2024, according to the New York Federal Reserve. A year ago, only 8.2% of credit card debt was seriously delinquent.

read more: How banning medical debt from credit reports could help millions of Americans

If you are experiencing delinquent debt or are at risk of delinquency, experts recommend talking to a nonprofit credit counselor and negotiating directly with your creditors. Here's what you should know:

What should I do if I am at risk of breaking the law?

Bruce McClary, senior vice president at the National Foundation for Credit Counseling, said anyone at risk of delinquency should seek help as soon as possible from a nonprofit credit counselor, some of whom can be found through his organization. Consultations are free and an unbiased advisor can provide guidance on long-term solutions.

McClary said nonprofits can also help create debt management plans with lower interest rates, no late fees, and monthly payments. These plans may come with maintenance fees, which vary, but these are offset by the overall savings on debt. McCrary urged borrowers to beware of scammers and for-profit debt consolidation companies, which often charge much higher fees than nonprofits. The Consumer Financial Protection Bureau has a helpful classification comparison of the two.

Martin Lynch, president of the American Financial Counseling Association, echoed the recommendation.

“For many people, taking the first step and contacting a counselor is difficult,” Lynch said. He stressed that indebted consumers should try to “relax first” and then tell a counselor as much as possible about their situation.

“You will talk to someone for free and he will listen to you describe your situation,” he said. “You can share your concerns without being judged for being stuck.”

What about negotiating with creditors?

Both Lynch and McCrary urge borrowers to contact their credit card companies directly to negotiate interest rates, fees and long-term payment plans, noting that it's in the company's best interest if you pay before your debt is put into collections.

“The best thing to do is reach out, honestly assess your ability to pay, and ask you what options are 'on and off the menu,'” McClary said. Such wording, he said, can provide creditors with a greater flexibility.

McCrary and other experts stress that most credit card companies and other lenders have hardship programs for situations like this. Such options have gained widespread attention during the COVID-19 pandemic, when more companies publicly advertised that consumers facing hardship could skip or defer payments without penalty.

Why is illegal activity increasing?

LendingTree data shows the average annual interest rate on new credit cards is 24.71%, the highest rate since the company began tracking in 2019. The highest level in four decades, peaking at 9.1% in June 2022.

Meanwhile, pandemic-era aid such as stimulus payments, child tax credits, increased unemployment benefits and pauses in student loan payments have ended. Wage increases have not fully kept up with inflation, hitting lower-income consumers harder, and rising rents have eaten into the savings some consumers may have accumulated early in the pandemic.

Silvio Tavares, CEO of VantageScore, a credit score modeling and analysis company, said delinquency rates have now exceeded pre-pandemic levels, and renters are particularly vulnerable to falling behind.

“Young people and less affluent people are facing challenges,” he said. “High interest rates are having an impact.”

Tavares said the most important things borrowers can do is understand their credit scores and make timely payments to avoid paying extra interest on revolving balances and debt. He warned consumers against overusing buy now, pay later loans, which are increasingly available “at every checkout”.

How concerning is the increase in illegal behavior?

Credit cards account for only about 6.5% of consumer debt, but increases in delinquency rates appear to be outpacing income growth, according to Bank of America Global Research.

McCrary said there may also be a large group of consumers who are temporarily paying the minimum balance and avoiding defaulting on their debt, but who are too financially stressed to pay their balances in full. A worsening economy could push these consumers into serious delinquency, he said.

In addition to rising credit card delinquencies, retail spending also stalled in April. Walmart said customers are spending more on necessities and less on discretionary items. Starbucks lowered its sales forecast, while McDonald's offered more deals as people spent less.
The Associated Press receives support from the Charles Schwab Foundation to produce educational and explanatory reporting that promotes financial literacy. The independent foundation is independent of Charles Schwab Corporation.

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