Credit Card Debt Has Hit Record Levels. Here’s How African Americans Can Pay It Off

The nation’s credit card debt reached a staggering $1.072 trillion through June 2019, according to CardTrak.com, a consumer credit card website. That record figure is the biggest increase in five years; the debt hit $888 billion in 2014.

The nearly 20% gain shows how Americans—including black consumers—keep relying on plastic to pay for a broad mix of goods and services. Regrettably, the spending behavior can lead to huge debt levels and become destructive for many credit card users.

Now is a good time to confront credit card debt and help get your finances in order. Consumers should act fast because the economy is beginning to weaken, which could affect their ability to pay credit card debt in the future, says Robert McKinley, senior analyst for CardTrak.com.

“Credit card issuers are already seeing more cardholders struggling—likely biting off more credit card debt than they can chew,” he says.

Plus, accessibility to credit could begin decreasing dramatically over the next two years–with higher spending costs for consumer–due to the fallout of the U.S.-China trade war on import tariffs and from tighter credit from rising loan losses, McKinley says.

As far as overall debt is concerned, Americans added $7 billion in credit card debt in April and May of this year or $14 billion total, McKinley says. He noted that activity represented the biggest gain in recent years and indicates the strong economy may be slowing down.

Do’s and dont’s of credit

Regarded as one of the nation’s top payment card experts, McKinley offered some insights to BLACK ENTERPRISE to help consumers better manage how they use plastic.

When it comes to spending, McKinley recommends people use debit cards for small purchases under $50 and credit cards for larger ones. He adds unless you charge heavily each month, and have really good credit, it is not worth using credit cards to chase points, miles, cashback or other rewards for everyday purchases.

“A debit card is money you have now, unlike a credit card wherein its money you hope to make,” he says. “Using debit may also give you time to ponder your purchases for better pricing, perhaps motivating you to monitor sales or to clip coupons.”

He noted credit cards are the most expensive form of borrowing, except for payday loans or similar borrowing methods. Therefore, McKinley says, it always comes down to the interest rate. He suggests if you have good credit, look for cards with low long-term rates at 15% or less, like those offered by credit unions.

“Larger banks dangle perks, rewards, and bonus points but cardholders pay with interest rates well above 20%, some near 30%,” he says. “If you receive an interest-free introductory rate offer for a balance transfer, examine it closely as you may have to pay a fee.”

Late payments, among the most devastating behavior with any kind of credit, is another potential pitfall consumers should avoid.

McKinley swears even one late payment can drop your credit score by 30 points, making it harder to qualify for better-priced credit cards or other loans. He says credit card issuers also charge late fees, generally around $35, with a hair-trigger that adds more pain. He advises users to pay the minimum as soon as possible each month.

“If you have extra you can make a second payment before the due date, allowing you to make real progress in reducing debt.”

On the consolidation front, McKinley says the best way is to consolidate all your credit cards to one or two cards with a big credit line and a lower rate. He said that method could help consumers avoid using assets such as their house to pay off credit card debt.

Help paying off credit card debt

Here are some tips McKinley provided to credit card users to help better manage or eliminate the debt:

• Pay Higher Interest Rates Cards First

They cost you the most, so pay them down first then sock them away for a rainy day.

• Squirrel a Card Away

Promise yourself to use it for emergencies only—purchases of $500 or more.

• Never Pay a Credit Card Late

This could trigger a higher interest rate and a late fee, adding more debt to your account and reduce your chances to get a lower-rate card in the future.

• Use Online Apps to Monitor Your Accounts

This option will help you better monitor your account, know the available credit you can use for purchases, and most importantly, remind you when the payment is due.

• Select a Better Due Date

Match your due date with your pay cycle. It’s better to have them come due a week apart and not all bunched up at the end of the month when you are trying to make rent.

• Never Use a Credit Card for a Cash Advance

Unless there is no extra cost; most issuers charge a big fee plus a higher interest rate for cash.

• Ask for help if you get into serious trouble

If you have extenuating circumstances, contact your creditor immediately and request to waive payments for a few months.