A growing number of people, many of them young adults, are struggling to pay their credit card debt – a trend troubling to the country and equally or more so devastating to individuals.
According to the Federal Reserve Bank of New York’s early 2024 household debt and credit report – a report released quarterly – the percentage of Americans who have credit card debt that was over 90 days delinquent rose to 10.7% during the first quarter of 2024, a rate not seen since 2012.
Borrowers ages 18-29 are having the most difficulty paying their credit cards. The reasons for falling behind are manifold: Young adults earn less and possess less savings, and they face rising prices in housing and car payments. Young consumers also have a shorter credit history and lower credit limits.
With federal student loans resuming after a three-year pause due to the COVID-19 pandemic, young adults are now facing potentially a new monthly bill.
Kevil Gil, Financial Wellness Manager at Everence Federal Credit Union in Philadelphia, has seen first-hand the effects of the end of pandemic relief.
“One of the common themes are young folks who were in student loan forbearance, which is coming to an end,” he said. “And them realizing ‘how much money I have available is about to change dramatically.’”
The consequences of falling behind, or even borrowing too much, can be severe for young people trying to establish their credit score. Borrowing over 30% of your available credit on a card can negatively affect your credit score.
On the other hand, maintaining a healthy relationship with a credit card and having a good credit score can mean having better rates on auto loans and mortgages, and easier access to rentals.
“I think it’s important to understand [a credit card] is a tool and a resource, and a lot of the times people fear it and walk away from it or borrowing in general,” Kevin said. “It’s important not to fear it; it’s important to understand how it works.”
For those struggling to pay off their credit card debt, here are some recommendations:
Consolidate debt
Debt consolidation loans help borrowers combine high-interest debts into a single payment, and usually offer a substantially lower interest rate.
A consolidation loan can help significantly improve credit scores. Kevin said revolving credits – lines of credit that remain open even as you pay the balance – weigh heavier on credit scores than an installment loan.
An improvement in the credit score can then allow borrowers to refinance the loan to pay less.
“It’s a two-bird, one-stone situation. It’s a no-brainer,” Kevin said. “Lower your monthly payment while elevating cash flow but also increase your credit score, which can ultimately help you lower your fees. "
At Everence Federal Credit Union, members can apply for a consolidation loan through a quick online application.
Keep tabs on your credit score
Everence recently rolled out a new feature available in online banking and on the mobile app. Credit Score by SavvyMoney from Trans Union will show not just an up-to-date credit score, but also share information spelling out what works and what can be done to improve a credit score.
Get help
Everence Federal Credit Union also offers Financial Wellness Counseling with one-on-one sessions to help address members’ unique circumstances.
While the Everence Financial Wellness Counseling services are only available at credit union locations in Michiana, Mt. Joy, Philadelphia and Harrisonburg, Everence members can also make use of the budget and debt counseling program offered by Financial Choice LSS.
Members have access to six free financial counseling sessions. All sessions are free and confidential, and appointments are available in person, by phone or online.