Answering your money, debt and credit card questions | Part 1


How much money do you have in savings? Hey, if it's less than $1000 you are not alone. A recent survey found 37% of Americans have under $1000 in savings. It comes as financial experts say. They are seeing increases in credit card debt. We are tackling all things money today with Jenna Adams from debt sucks university. Sounds better, better still working on that. Alright, and Ted Rossman from bankrate.com and creditcards.com. So the first question Ted. I'm going to ask this to you. What trends are we seeing in credit card debt during the pandemic? So the overall trend has actually been surprisingly positive.


We've actually seen total credit card debt fall 15% during the pandemic. That, however, is hiding the fact that unfortunately, a lot of people aren't doing so well. We actually found that 42% of households have added to their credit card debt during the pandemic, and you know we're specifically talking about young adults here. In general, that tends to be the way it it skews, and I would just note that. Her debt remains a persistent problem, even though the overall trend is positive, the average person with credit card debt owes over $5500, according to Experian, and about half of people in credit card debt have had it for at least a year. The interest rates are high. We definitely want to come up with some good strategies to pay that down. Whether that's a 0% balance transfer card or nonprofit credit counseling, or really just the fundamentals of finding ways to up that income, cut those. Expenses you really need to make this a priority, so J.


What can someone do if they do have credit card debt? Sometimes it's getting that first step can be the hard part. Yeah, so definitely one thing. I always tell people is to get an emergency fund together because that's what keeps people going back into debt and so that emergency fund. Depending on what your life is like, could be between 500 to $1500. Once you get that done, then it's time to pay down that credit card debt as fast you can.


So like he said, cutting back on things so being able to look at everything in your spending plan line by line and seeing what you can cut back on. Can you cut back on cable? Can you cut back on eating out all that could give you 50 to $100? Extra month you can use to pay down that debt. So now what? If you're the person who realizes that you are in debt and you don't have that savings, you don't have that rainy day fund. What should someone do if they they don't have the ability to pay that off? Yeah, so definitely what he was saying and be able to go to a nonprofit agency to get some help to help pay that down and see what strategies you use but also just take it one step at a time. The best thing that a person has done in that situation and realize they're in the debt and knowing what that exact number is, but then going and saying OK, let me start paying towards it while also added to my savings.


And that's going to help them take some of the financial stress. Offer them and out of their lives. This is probably a question for a lot of people who are credit cards good for. About half of credit cardholders pay their bills in full every month and avoid interest. That's really what we want to shoot for, because that's when credit cards really work for you. Credit cards have much better rewards programs than debit cards, and I would note that credit cards have other advantages, better fraud protections, better buyer protections, things like extended warranties, purchase protection. There are some great things about credit cards. The one bad thing is the average interest rate is 16%. So we really want to aim to be part of that group that's paying in full. If you can do that, then you can get cash back. You can get travel miles then.


Credit cards can really work for you. For someone who might be in a situation where it's a monthly cycle where they pay down a little bit of it. But then they build it back up and then they pay down a little bit of it every month. Would you suggest taking money they have in savings to pay it off completely, but risking the the knowledge that you will not have that that safety net? I think that could be a good strategy given how high credit card rates are. I would say though, that you don't want to put all of your eggs into that debt payoff basket, because one thing that we saw last year was that when times were really tough in the depths of the pandemic, a lot of lenders cut credit limits, so you know if you were using your credit card as your emergency fund. Just realize that that may not always be there in times of need, so I love the idea of paying down credit card debt, but I also think it's really important.


To have some savings, some readily available money so you know what is that threshold. We often talk about three to six months worth of expenses, although that may sound like a lot to a lot of people, so we want to start somewhere you want to start. Maybe by getting that initial 1000 bucks saved away. Or maybe it's that one month of expenses, so I think ultimately the truth is probably somewhere in the middle. You know, maybe. You attack both of these simultaneously where you're trying to pay down your debt, but you're also boosting your savings and realizing that, even if that ultimate destination is hopefully being free from credit card debt and having three to six months worth of expenses. It's also true that. Every dollar you pay down on your credit card is basically a guaranteed return of whatever that interest rate is 1520%, and so you know maybe the kind of thing that you attacked both of these simultaneously. Janae, we've seen some companies recently, especially Walmart, really in the news lately, doing away with their layaway programs, but there are other buy now.


Pay later programs out there. How are they different and which is the best choice for you? Well, all of them are now just charging fees anyway, so they took the layaway which was free, and now they're pretty much jumping into the bowl with everybody else at the Buy now pay later, which also will have fees, and so it's just up to the person I always specially now that the holidays are upon us. I always talk about starting now, like we're in October, so you have almost three months to save up for Christmas holidays if you celebrate it. So start saving $1020 a week right now so you don't even have to worry about. Any kind of fees, any kind of buy now pay later. Just buy what you can with the money you have that you saved and everybody will be pleased with that.


Because guess what? It's really about the holidays and family and not about gifts, right? That's a good reminder for everybody. What would you say are the downfalls to these programs? Is definitely being able not to actually pay it on time, so I before I got into the $50,000 of debt I did the buy now pay later with furniture and so I know this first hand and it was the whole you open up the credit card and you get no interest, no payments for five years. What I didn't know is that at the end of the five years, if I didn't finish paying off the furniture, all the interest is going to be added on to the end.


And so I ended up paying it all. So I that's why I tell people, you know, you have to really be careful with the buy now, pay later, because if you don't. Pay on time. You can end up paying more for what you actually did. I would have paid way more for the furniture than I was supposed to. Ted, when would you say is a good time to apply for a credit card? I think it's a great time to apply when you have a bunch of spending coming up that you can hopefully pay in full. So we talked about how important it is to avoid those high credit card rates. First of all, only chase rewards if you can pay in full, but the reason I say time it around a big spending spike is because most of the best credit card bonus offers will require you to spend a few hundred all the way up to a few $1000 within the first few months. So you want to make sure ideally it's money you would have spent anyway.


And money you can pay off before interest hits. So cards like the chase sapphire preferred for example, they're giving 100,000 bonus points, so those are worth about $1250. You have to spend $4000 in the first three months, so the holidays can actually be a great time to get one of these deals and use that spending that you would have done anyway. Just make sure to pay it off. You also can apply for credit cards that give you 0% promos on balance transfers when you move existing debt or new purchases. It can be a little bit of a slippery slope. I don't want you to overspend, but it can actually really help you pay down existing debt. So for somebody who's currently struggling with debt, we see credit cards on the market that have zero percent terms as long as 21 months, so that's actually a great example of how signing up for a new card and taking advantage of this can be a great way to get out of debt.


You just be careful that you're disciplined about it. I would say don't put anymore purchases on that card, divide how much you owe by the number of months in your zero percent term, and really be disciplined about that. Ted and Jenny. Some great conversation going on one segment down to to go. If you've got questions, text them to us and we will be right back..

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