It’s no secret. Americans really know how to accumulate debt.
In 2021, the total debt of all U.S. households reached a whopping $15.24 trillion, according to a report from the Federal Reserve Bank of New York.
On a more personal level, the numbers are even more eye-popping. The average family with revolving credit card debt owes more than $6,741. This may seem low, but it is an indicator of potential problems — for example, consumers charging purchases that they can’t afford, whether those are necessities that their income doesn’t cover or nonessentials that they decide to take on debt to acquire. The averages increase for auto loans (about $28,000 per household), student loans ($47,600) and mortgages (about $185,000).
However, few Americans understand how to get out of debt. It starts with willpower. But there are also proven financial strategies that can really pay off. First American Bank has many products and services that can steer you in the right direction. These include everything from low-interest debt consolidation loans to attractive credit card options.
If you’re carrying a large debt load, be prepared to spend about 15% of your income on reducing it. Why so much? Because if you make only minimum payments on your credit cards and other loans, the interest charges will continue to pile up.
Tighten the belt. To free up money for debt payments, you’ll need to reduce spending. Come up with a monthly budget, put it in writing and stick to it. Need a few money-saving ideas? Eat fewer meals at restaurants. Make fewer stops at fancy coffee shops. Cancel cable TV and opt for cheaper streaming services.
Credit cards offer convenient buying power and can earn valuable rewards for consumers. The problem comes when we charge too much and don’t pay down the balance fast enough, which causes interest charges to pile up.
Set priorities. If you have multiple credit cards, identify the one with the highest interest rate. Pay as much as possible each month on that card. Make minimum payments on the others. When that first card is paid off, switch the biggest payment to the card with the second highest interest rate, and so on, until your debt is gone.
Zeroing in. Another technique is to apply for a new card that offers 0% interest for a certain period, often 12 to 24 months. Then transfer all outstanding balances to the new card. This will buy you time to pay down the balance without accruing new interest charges. First American Bank has partnered with Elan Financial Services to offer a variety of credit cards that can help keep your debt under control.
People need to buy homes and cars and send their children to college. It can be an excellent investment to borrow money for these purposes, but keeping up with all the payments can be a challenge.
Most homes are financed with 15- or 30-year mortgages, but you’re not obligated to keep the original loan that long. If interest rates drop, consider refinancing. Just a 1% rate reduction can trim payments on a $200,000 mortgage by well over $100 per month. Even if rates haven’t dipped, switching to a loan with a longer payoff period will reduce monthly payments and free up money to pay off shorter-term debt. Loan officers at First American Bank can explain our many refinancing options.
Consumers often drive away from an auto dealer with a vehicle they love and a loan they don’t. The solution is to trade in that unsatisfactory auto, motorcycle or RV loan. Refinancing to a lower interest rate or longer repayment period will reduce monthly payments and the stress on your household budget. First American Bank offers a wide range of options for auto loan refinancing.
Student debt can crimp anyone’s lifestyle. One solution is to consolidate all those years of school loans into one new loan to reduce your overall monthly payments and simplify your finances. College grads with federal loans only can apply for a Direct Consolidation Loan. First American Bank also offers options for students at competitive rates.
Debt consolidation can also be a good strategy for other consumers. First American Bank offers great rates on personal loans, home equity loans and home equity lines of credit. You can use money from those sources to pay off credit card balances, medical bills, and even school loans, and bring your debt situation under control.
A final word. Beware of debt relief companies and their offers. Many are scams, according to the Federal Trade Commission. Find out who is legit by contacting your state Attorney General’s Office or consumer protection department. Feel free to contact us at any time with any questions. We are here to help!