Paying Down Credit Card Debt

Just when you thought 2020 was devoid of good news for Americans – here is a small financial reason to smile! U.S. consumers paid down a record amount of credit card debt this past year.

However, that does not mean American consumers now harbor less credit card debt. According to a report from the Federal Reserve, Americans began 2020 with $1.09 trillion in credit card debt – an all-time high. That number came about from a $76.7 billion net increase during 2019, according to a WalletHub study.

Surprisingly, the global pandemic did not cause a continued dramatic increase of credit card debt. In fact, a downward trend was almost immediate. A slight paydown of consumer credit card data is normal in the first quarter of any year, according to the WalletHub study. However, in the first quarter of 2020 consumers paid down $60 billion in credit card debt – the biggest paydown ever.

The WalletHub study found that consumers continued paying off credit cards throughout 2020. In Q2 and Q3 combined, consumers paid down $58.8 billion more in credit card debt. That is the first time in more than 30 years that credit card debt has dropped from April through September in the U.S.

It is not that Americans stopped using credit cards in 2020, they simply reprioritized their household budgets. According to a Money.com study, 70% of U.S. consumers said they have no plans to cancel or close existing credit cards because of the pandemic. Instead, Americans have begun reducing discretionary spending during the pandemic, taking advantage of lifelines offered through the federal CARES act, like stimulus checks and additional unemployment compensation , to pay down credit card debt.

Whether you are interested in reworking your budget or simply want to reduce debt in 2021, there are a few immediate benefits to lowering credit card debt:

1. Reduce stress – Finding room in a budget to pay bills on-time can keep a person up at night. Paying down, and eventually, paying off that debt will alleviate additional stress.
2. Start next year debt-free – Beginning a new year with a fresh outlook can be liberating. Set an appointment now to meet with a credit counselor and get the guidance you need to start next year debt-free.
3. Reduce the number of bills you pay – Less bills to pay means your hard-earned money can go toward other things, like saving for a new home, a new car, or a special gift.
4. Take that much needed vacation – Paying down or paying off debt can make taking that trip you have always wanted a guilt-free reward.
5. Pay less interest – Paying your credit card debt down can save you excessive interest payments, reducing the total amount you owe over time.

As you are paying down debt, it is important to remain realistic. While it can be tempting to throw as much money as possible at outstanding credit card debt, it is important to properly budget for daily, weekly, and monthly necessities (food, clothes, rent, etc.). Be realistic about how much you can put toward your credit card debt each month by deploying the helpful tips below.

Tips to paying down credit card debt
Paying off credit card debt can seem daunting – especially if you have compiled quite a bit. Getting out of credit card debt is not a sprint – it is a marathon. With determination and some solid advice, living credit card debt free is possible. Here are some tips from Credit.com to get started in the right direction:
• Get organized – Gather all the information for every card with a balance. Make a list of the amounts, interest rates, due dates, and minimum payment for each card. Add up all the minimum payments on each of your credit cards to determine how much you must pay each month just to stay on top of credit card bills.

• Create a budget – You can follow every tip for paying down credit card debt, but if you are not spending within your means, you will likely settle into the same repetitive cycle. Create a budget that works for you, leaving wiggle room to pay down that credit card debt.

• Paying off the card with the highest APR first – Paying off the highest interest rate first makes the most monetary sense because it cuts out spending on a larger chunk of interest. Try boosting your payments on the card with the highest APR and paying the minimums on the remaining cards. Once that card is paid off, move on to the card with the next highest APR.

• Paying off the card with the lowest balance first – This method may not make as much monetary sense as paying off the highest interest rate card first. However, this may be a method that is easier to stick to for those who have a difficult time staying motivated without quick gratification. Enjoy the endorphins that come from paying off that lowest balance – then keep paying off from there!

Tips for Managing Credit Card Debt

 Ohioans may fair better than the average American when it comes to credit card debt.

The most recent ValuePenguin data showed the average Ohio household holds just $5,446 in credit card debt. That’s the least of any state, while the typical household in Alaska carries the most credit card debt at an average of $13,048.

While credit card debt varies widely by state and region, it’s clear that there is a crisis in America with debt approaching $14 trillion. Credit cards are a big contributor, making up over a quarter of that amount. According to Debt.org, more than 189 million Americans have credit cards. An average household has at least four cards, carrying roughly $8,400 in credit card debt.

Experian reports that credit card debt is the second-fastest-growing debt behind personal loans and has been on a steady climb since 2015. Interest rates seem to be on the decline, with CreditCards.com stating the average credit card interest rate for new cards is currently 17.3%, down three quarters of a percentage point since the Federal Reserve cut rates in fall of 2019. But the annual percentage rate (APR) is still at a near record high – up from 16.8% in 2018.

Credit cards certainly have their advantages if used responsibly, especially if you’re able to pay off the balance in full every month by the due date. Credit Karma reports that credit unions typically offer lower interest rates, as well as competitive rewards and membership benefits. If you do find yourself struggling with credit card debt, you’re not alone. Your local credit union may be able to help you get back on top of your finances.

Credit unions are not-for-profit financial institutions owned and democratically-controlled by their members. Built on the philosophy of “people helping people,” their focus is on better serving their members with great financial benefits, like making life more affordable by dealing with credit card debt.

 

Tips for dealing with credit card debt

 

  1. Assess your financial situation. Come up with a list of everything you owe, including monthly bills, credit card balances and the annual percentage rate (APR) for each card. Then, compare expenses with income.
  2. Prioritize your spending. Before tackling credit card debt, be sure to cover the basics first, such as food, housing and clothing. Next, pay the minimum amount on all secured debts, like your home and car loans. Then, start working on paying down credit card debt with useful tools like the Credit Karma Debt Repayment Calculator, followed by student loans. Try to use cash or debit cards only while paying down debt. Above all else, pay at least the minimum balance on all outstanding debt to avoid hefty late fees.
  3. Establish a budget. Once your debts have been prioritized, it’s important to come up with a budget to track spending and minimize credit card debt. Use online tools like YNAB (You Need a Budget) to get started. Try to adhere strictly to your newly established budget.
  4. Secure a better rate. Negotiate a lower interest rate on your credit cards. According to CreditCards.com, sometimes all it takes is a simple phone call to (politely) request a better rate. Shaving off even a percent or two could save you hundreds of dollars while repaying your debt.
  5. Decide on a strategy. When paying down credit card debt, it’s important to settle on an action plan. There are two main ways to do this. One is to focus on paying down the card with the highest interest rate first, while making minimum payments on the other cards. This is the fastest way to decrease credit card debt, eventually freeing up more cash to pay toward the lower interest rate cards and creating a snowball effect. The other strategy is to pay the lowest balance first, while paying minimums on the others. Though not as cost-effective, this is the fastest way to get rid of debt on a single card.
  6. Stay focused by creating concrete goals and staying motivated. Keep your eye on the prize! Perhaps getting rid of credit card debt will afford you a down payment on a house, new car or dream vacation. CreditCards.com suggests writing your goals down and keeping them in your wallet or purse. When tempted to overspend, take a peek at them for a big picture reminder.
Mortgage Rates

Mortgage Rates Remain Near 7-Month Lows

Mortgage rates touched seven-month lows early this month, and stayed there last week.
According to Bankrate.com’s weekly national survey, the benchmark 30-year fixed mortgage rate inched lower last week, moving from 4.04 percent down to 4.02 percent.

The larger jumbo 30-year fixed nosed up to 4.00 percent, and the average 15-year fixed mortgage rate settled at 3.25 percent. Adjustable mortgage rates were mixed, with the 3-year ARM slipping to 3.48 percent while the 7-year ARM climbed to 3.60 percent.

Bankrate points out that, despite another interest rate hike by the Federal Reserve, mortgage rates are hovering at the lowest point since mid-November and are little changed from where they were 18 months ago when the Fed started boosting interest rates.

The common theme then, as now, has been a slow growth economy with low inflation. This week brought additional evidence of low inflation and the recent softening has garnered the attention of the Fed, who noted in their statement that they are “monitoring inflation developments closely.”

Mortgage rates are closely related to yields on long-term government bonds, which appeal to investors any time uncertainty, or low inflation, is in the air.

Mortgage

Mortgage Rates Do an About-Face

Mortgage rates started the year on a tear, continuing an upward trend that push them to highs not seen in years. There was one-party rule in Washington! A new president who wanted to spend a trillion on infrastructure! An aggressive Fed eager to push interest rates higher and higher! And then, reality set it.

First, the one-party rulers failed to pass a healthcare bill. This exposed deep rifts within the party, and cast doubt on the spendy president’s ability to get his agenda passed.

All of this played out against a backdrop of global uncertainty, with a (potentially) unravelling European Union, a horrible civil war continuing in Syria and an emboldened young tyrant in North Korea, eager to play with his nuclear toys.

According to Bankrate, the international tensions, coupled with a spate of weak economic data, have prompted more investors to move into safe haven instruments like U.S. Treasuries.
When bond prices rise, bond yields fall and mortgage rates are closely related to the yields on long-term government bonds.

And fall they have: last week, the benchmark 30-year fixed mortgage rate fell to 4.16 percent – its lowest level of the year, Bankrate said.

Weakness, uncertainty, and nervousness, which have each been in plentiful supply in recent weeks, are good news for bond investors and mortgage shoppers alike.

Expectations for a June Fed interest rate hike have also eased slightly, further contributing to the downward adjustment on bond yields and mortgage rates.

Technology

How is technology changing the way consumers manage their finances?

Consumers rely on their financial institutions for multiple reasons and define their convenience based on their habits. As technology continues to evolve, these habits are drastically impacted.
In a time when smartphones are becoming more and more integral to consumers’ daily lives, financial institutions are increasingly using mobile devices to provide services to their customers. About 35 percent of consumers who participated in a consumer survey conducted by the Ohio Credit Union League reported they rarely visit branches in person. They carry their branch in-hand on their mobile phones, taking advantage of what mobile access has to offer. That is not to say people are foregoing in-person transactions. More than half of the survey’s respondents stated that they regularly visit a branch of their financial institution one to four times a month.

In a 2016 study conducted by the Federal Reserve, 53 percent of all smartphone users with an account at a financial institution have used mobile access within the last year. For consumers who’ve made the switch to online or mobile access, the most-common reason is convenience.

Technological advances are synonymous with the financial industry, and here are some ways to ensure you are taking full advantage of the financial technology at your fingertips.

Download your institution’s smartphone app: PFCU has a fully functional mobile app that enables our members to utilize services on the go.

Investigate any online financial planning tools: Calculators, budget templates, and finance tips are often available from financial institutions. Account-linked tracking and analyzation tools can help clarify spending trends and assist with tax filing or budget forecasting.

Sign up for e-alerts: When there is potential fraudulent activity on your account, or your account’s balance dips below a certain level to help you stay on top of your available funds and avoid overdraft fees. Click here to set up PFCU e-alerts.

Utilize online bill pay: Instead of checkbooks, stamps, and folders full of invoices and canceled checks, pay your monthly bills online with a click of a mouse. PFCU offers this service at no charge.

To learn more about how ProMedica FCU can help you afford life, call 419-479-1313 or stop in to one of our four locations.

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Car Shopping

Five Ways to Turbo Charge Your Car Shopping Process

More than 23 percent of Ohio consumers are considering purchasing a vehicle this year, and 83 percent are more likely to finance the purchase than pay cash, according to a consumer survey conducted by the Ohio Credit Union League.
When asked what factors respondents considered when vehicle shopping, 67 percent said monthly payment is the biggest influence on their decision. For 61 percent of participants, gas mileage is the most important issue, while 47 percent said consumer reviews are important in their decision-making process. Other aspects considered when shopping for a vehicle included a safety rating, vehicle’s history report, and general aesthetics.

It’s no surprise gas mileage is at the top of consumers’ minds. According to Time Magazine’s Everyday Money, after a slight gas-tax increase (to 31.3 cents per gallon) took effect Jan. 1, the average cost of a gallon of gas in the Buckeye State is $2.03. Up from $1.49 a year ago. The national average for gas sits at $2.29 per gallon, according to AAA. That’s 29 cents more than the national average at this time last year.

In addition to the cost at the pump, here are a few tips when choosing a new vehicle that will have the least effect on your wallet.

• Use your tax refund. The more money you’re able to put down on a car, the smaller the loan and ultimately, the less you pay in interest over the life of the loan.

• Get pre-approved. Before car shopping, get pre-approved. It’s fast, free and online at ProMedica FCU. Pre-approval will give you more power to negotiate on the purchase price of the vehicle. Pre-approval also tells you how much you can afford and what type of monthly payment you will have.

• Budget ahead. As a rule-of-thumb, do not allow a monthly payment for a vehicle to exceed 12 to 16 percent of your gross monthly income.

• Consider the total cost of ownership. When car shopping, consider the cost of insurance and maintenance. Also, keep in mind that a high-end vehicle typically costs more to insure and maintain.

• Check with ProMedica FCU. Rather than purchasing items like a warranty and Guaranteed Asset Protection (GAP) coverage at the dealership, check with a credit union. PFCU offers these items at a lower cost than what you would find at a dealership. 


To learn more about how PFCU can help you afford life, stop into one of our four locations or call 419-479-4040.

*Pre-approval based on individual credit worthiness using ProMedica FCU risk based criteria. Pre-approvals are valid for 30 days. Not all applicants will be pre-approved.

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Digital Files

Utilizing Digital File Keeping

Most everyone has too many digital files to count these days. Music, pictures, financial files, product warranties, even retail receipts that are e-mailed rather than printed at the cash register leave us with digitized pieces of our everyday life.

Sixty-eight percent of Ohioans organize their important documents digitally, according to a 2016 Mid-Year Consumer Survey, conducted by the Ohio Credit Union League. When it comes to their personal bookkeeping, 27 percent said they receive all their monthly account statements digitally via e-mail, 52 percent said they receive at least some of their monthly statements digitally, and 21 percent said they still prefer to receive hard copies of all statements.

Even while people utilize digitization for their personal accounting and filing systems, almost 57 percent of the survey’s respondents said they’re not entirely sure their personal information is safe. Less than 32 percent said they have complete faith that their files are safely stored.

A 2015 international survey conducted by Accenture Consulting noted that while consumers find smart devices, and the files stored on them, to be increasingly relevant to their lives, they are not convinced there is a satisfactory level of security and privacy.

While less paperwork to pile, file, or shred is a bonus, digital consumers still want to feel like their personal information is safe. Here are a few helpful tips for staying organized and keeping digital data safe.

• Take control of your computer. Perhaps the most important step in digital organization is taking control of your computer. File important e-statements in labeled folders in your “My Documents” folder. It reduces desktop clutter, adds a level of security if your system crashes, and makes searching easier should you need to find a document.

• Set a rule for creating passwords. You don’t need to remember 75 passwords if you have one rule set for generating them. For instance, try always using your initials to start, followed by a favorite number, then the first two to three letters of the service name. Using the same password repeatedly makes it easier for identity thieves to hack into your accounts. And creating multiple passwords with no rule makes it difficult to remember them all. There are also numerous secure password storage apps to keep all of them in one place for easy retrieval.

• Archive files. Archive what you don’t want or need. Create a folder in your “My Documents” folder called “Archives.” You can place items there you don’t necessarily need, but aren’t comfortable deleting right away.

• Keep a paper trail. Keep a digital and a safely-stored paper version of critical documents that are either hard to replace, such as family health records and major home improvements, or for documents that are tax or business related.

Contact PFCU to find out how we can provide digital documents for your financial needs.