Credit card debt has fallen during the pandemic, with figures from credit bureau Experian showing that average debt has fallen from $6,194 in 2019 to $5,313 in 2020.
But debt is still a black cloud looming over many US households as many face job cuts or wage cuts as a result of the pandemic.
While some people have been able to use incentive checks, tax refunds, and savings to… help pay off debts, many need that money to make ends meet.
The issue has even caught the attention of experts like Warren Buffett and Suze Orman, who are urging Americans to prioritize debt clearance.
If you’re faced with a mountain of debt as the pandemic continues, there are ways to ease the burden.
Who bears the heaviest burden?
Although credit card debt has declined during the pandemic, many cardholders still have outstanding balances.
In March, according to an analysis by ValuePenguin of LendingTree, Americans owed $807 billion on nearly 506 million card accounts.
Just over 45% of families have some type of credit card debt, with high earners and those with college degrees both having the highest balances.
What explains the inequality?
In 2018, 40% of Americans revealed they would struggle to afford a surprising $400 outlay, according to a survey by the Federal Reserve.
Not much has changed since then, as a report from the Fed last year showed that the number of Americans who could raise $2,000 for an unexpected bill in 2020 dropped dramatically.
That should come as no surprise when you consider that once the pandemic hit, millions applied for unemployment benefits when they were forced out of the workshop.
The US reported a record high unemployment rate of 14.7% — the highest number the Bureau of Labor Statistics has reported since it began tracking that data in January 1948.
And with 23.1 million people out of work in April, many had to use up their emergency funds (if they had any) or rely on credit cards to get out of the pandemic, nearly a quarter of consumers told CreditCards.com that they had to add to their debts to get through the crisis.
What would the experts advise?
Berkshire Hathaway CEO Warren Buffett addressed the issue of credit card debt at his company’s annual meeting last year.
Buffett thinks that while Americans love their credit cards, they are way too expensive.
He would advise using a cash inflow like your tax refund to help clear those balances.
Meanwhile, Suze Orman has a bit more of a “necessary evil” approach when it comes to dealing with credit cards. She’s actually more concerned about the weight of student loans.
“The student debt is a debt that in most cases you never get rid of. So that debt is really, really important,” Orman told CNBC.
That’s why Orman suggests tackling your student loan or other secured debt before clearing out your credit cards.
Another secured debt to consider is your mortgage. Refinancing at a better rate could potentially save you a few hundred dollars a month.
Other ways to pay off your debt
Whatever debt you have on your plate, if the bills start piling up and you’re struggling to keep up, you have a couple of options.
Make it save your policy. If you’re not looking for a better deal on your auto insurance, you could be overpaying as much as $1,100 each year. Look around to make sure you get the best possible rate. Then apply the same approach to your homeowners insurance policy to ensure that you save hundreds every month also on that policy.
Consolidate your debt You can also save money by rolling all your debts into one lower-interest consolidation loan. You don’t have to worry about paying multiple creditors at different interest rates.
Save big on every purchase. Even if you’re on a tight budget, occasionally stock up on the essentials. Make sure you always get the best price by download a free browser extension that automatically scours the web for coupons or the best deal every time you shop online.
Get money for your junk. If you’ve been hit hard by the itch of spring cleaning, why not channel your manual labor into some cold hard cash? And if you find something in the process that no longer inspires joy, put it up for sale on a site that offers you 33% more in return than other used sales sites.
Turn your pennies into a portfolio. Today it’s easier than ever to delve into the world of investing – and it doesn’t have to cost a fortune. Download a popular app that lets you: invest with your “change” and turn your pennies into profit.