We spoke with Symple Lending, a highly respected team of debt consolidation specialists, about the growing segment of American consumers who woke up to the New Year shackled to debt from Christmases past. It wasn’t just the holiday spending ghost of 2022 that got them into this mess. In the past 12 to 18 months, prices have been rising but paychecks have lost their elasticity – their purchasing power has plummeted. And when a paycheck doesn’t allow the consumer to pay for everyday essentials like groceries, utilities, and gasoline, it spells trouble.
Symple Lending reiterated that as inflation mercilessly grinds higher, it will continue to permeate every element of consumers’ lives; interest rates on credit cards, as well as revolving loan balances, will continue to skyrocket. In fact, consumer debt is accelerating at a pace that we haven’t seen in the U.S. in decades.
Government data crunchers have been busy, counting every swipe of plastic. According to the Federal Reserve Bank of St. Louis, the average commercial bank interest rate on credit cards was 16.27% as of August 2022. And they continue to rise sharply setting record new highs. Household credit card debt surged in 2022 – surpassing 2008.
Resolutions versus Reality
When we spoke with the expert team of debt consolidation specialists at Symple Lending, they said that many Americans have ambitious plans to be debt free; they start the year with a fervent desire to obtain financial freedom. Yet, it will take more than passion to get out of debt. Consumers must create – and stick to – a solid budget or financial plan.
The reality is that many people who are deep in debt relied on credit cards to make ends meet. “Credit cards are like power tools,” said Ted Rossman, senior industry analyst at Bankrate and CreditCards.com. “They could be really useful, or they could be dangerous.”
Another painful bite of reality is that in the third quarter of 2022, American consumers amassed $925 billion in credit card debt. The Federal Reserve of New York reported that the quarter’s $38 billion jump is a 15% year-over-year rise – the biggest hike we’ve seen in more than 20 years. In a separate report, it stated that 233 million new credit card accounts were opened in Q2 2022. There are 191 million Americans with at least one credit card.
The average household never intended to get in such a predicament with unmanageable debt. From their perspective, repaying this debt may seem as improbable as scaling Mt. Everest. Peeling back the layers of debt, a good chunk may be attributed to the recent economic turmoil. Yet it may also be due to poor budgeting skills and unexpected expenses.
Jill Schlesinger, CBS news analyst and certified financial planner, says she hears from people regularly who are shocked by their financial situation: They have no idea how they are suddenly in so much debt.
According to Symple Lending: Knowledge is Power
Now for the good news: there’s a way to break free from this cycle and chart your path to financial freedom. The first step isn’t pleasant.
The team at Symple Lending agrees with other debt specialists, like author and radio talk show host, Dave Ramsey, that people should devise a plan. It’s his opinion that the best place to begin is to list all debts that you owe. If you’ve been avoiding this, you may be in for a rude awakening. He added, “You can’t successfully climb a mountain if you know nothing about it.”
Tara Falcone, certified financial planner and founder of the app Reason, says, “Take stock of every debt you have. Write down the balance, interest rate and minimum payment for each. Finally, add all of the balances together to know exactly how much debt you have to pay off.”
Ramsey and Falcon agree: Calculators are like scales – they don’t lie; they tell us the painful truth.
Staring at a mountain of debt that seems to eclipse Mt. Everest is frightening. One way to tackle it is to break it down into manageable pieces. Ask anyone who summited Everest if they reached their goal in one day. They studied it from every angle for months, or years, then created their plan of attack. Those who reached their pinnacle did so with a healthy mix of courage, persistence, and determination.
How to Reach your Mountain Top
“The higher rates and inflation are playing a number on the budgets of many households and consumers are hurting,” said Supermoney financial planner Andrew Latham. Getting hit with late charges just adds to the stress. To alleviate this burden, Latham said, “You may want to consider taking out a personal loan or a secured loan to pay off your credit card debt.”
While some take this advice to heart, others believe they can chip away at credit card debt – despite rising interest rates. Symple Lending experts have data to prove that’s a no-win scenario.
Paul Siegfried, senior vice president and credit card business leader at TransUnionar says that fourth quarter 2022 debt will also be on an upward trajectory. “We expect to see those card balances exceed $900 billion,” he said.
A common question around the dinner tables in homes across America is: how long it will take us to get out of debt? Many households are realizing that there is a way to achieve a better, smarter outcome – sooner.
One way to accelerate the date that you can break from financial bondage is to roll your debts into one loan. Focusing on making only one loan payment can help eliminate feelings of despair; it will give borrowers some much needed breathing room, enabling them to become debt free sooner.
“As an example,” noted Rossman, “if you have $5,000 in credit card debt and you only make minimum payments, the rate hikes (16.30% in January 2022 to 19.42% in late 2022) add seven months to your payback cycle and costs you an extra $1,173 in interest.”
Consolidating your debt means rolling all your balances into one single loan. This isn’t limited to only credit card debt; you may also add in personal loans. Some of the benefits include:
- Lower interest rate
The Fed and banking institutions may decide to keep raising interest rates in 2023 and beyond. A consolidation loan allows you to put the brakes on interest rates. Once you lock in a rate, it will not vary – if you comply with the loan agreement. When you lower the interest rate, balances will also begin to shrink. Consequently, your financial health begins to improve – as does your outlook for a brighter future.
Lower interest rates can also shave off months or years from your repayment schedule, saving you thousands of dollars. Also, lower credit scores equate to lower payments.
- Simplified repayments
Juggling too many loans with various due dates can be exhausting for borrowers, leaving them overwhelmed. By choosing to consolidate your loans you will find it easier to keep track of payments – as you will have just one. Some institutions allow you to enroll in automatic payments, giving you one less thing to remember. Borrowers with too many payment dates are more likely to forget one, which can result in hefty late fees and penalties.
- Lower monthly payments
Once the interest rate is determined, you may have the opportunity to select from several repayment options, such as 2, 3, or 4 years. Working with your loan officer, you can choose one that will best fit your budget. Obviously, the shortest term will enable you to repay the loan faster – and with less interest paid.
As if these aren’t excellent enough reasons, here’s one more – an emotional benefit. “Individuals that are completely debt free absolutely have a different mindset. There’s a greater sense of peace, freedom and opportunity that comes with being debt free,” says Falcone. “Not owing anyone anything or being beholden to anyone offers debt-free individuals more options and control over every dollar they own. When you have no debt, you’re able to, with 100% freedom, decide how and when to spend your money.”
Time for a Change – for the Best
It’s a New Year and it’s the right time to make a resolution to strive to live a life that’s debt free. The experts at Symple Lending have been helping families take back control of their lives by offering fixed-rate loans.