After a record-setting year for credit card debt reduction in 2020, US consumers maintained their strong performance during the first quarter of 2021, paying off $56.5billion in credit card debt, according to the personal-finance website WalletHub’s latest Credit Card Debt Study.
Although credit card debt levels are becoming more manageable nationwide, some areas have bigger payment problems than others. With that in mind, WalletHub compared more than 180 of the largest cities based on how much residents owe to credit card companies – specifically, how those balances changed in Q1.
Some key takeaways included:
- Continued Debt Reduction. Credit card debt decreased by $56.5 billion during Q1 2021, following a record paydown of $82.1billion in 2020.
- Bigger Paydown Than Normal. Consumers’ Q1 2021 credit card debt paydown was 51% larger than the post-Great Recession average for a first quarter.
- Rising Charge-Offs. At 2.95% for Q1 2021, the credit card charge-off rate is up by 14.3% compared to last quarter.
- Ease Your Debt. The best balance transfer credit cards currently offer 0% APRs for the first 15-20 months with no annual fee and balance transfer fees as low as 3%.
The cities with the biggest debt paydown were:
- Santa Clarita, CA
- New York, NY
- Chesapeake, VA
- Chula Vista, CA
- Pembroke Pines, FL
- Pearl City, HI
- Santa Ana, CA
- Virginia Beach, VA
- Rancho Cucamonga, CA
- Plano, TX
Whilst the cities with the smallest debt paydown were:
- Fargo, ND
- Buffalo, NY
- Akron, OH
- Cedar Rapids, IA
- Milwaukee, WI
- Toledo, OH
- Cleveland, OH
- Lewiston, ME
- Madison, WI
- Detroit, MI
Wallethub went on to give tips on how to avoid credit card debt:
- Make a Budget and Stick to It: It’s difficult to spend within reason or plan savings if you don’t know how your monthly spending compares to your take-home pay, or where that money is going. That is why you should rank-order your expenses – including debt payments, emergency fund contributions and other savings – and trim the fat, if necessary. Most importantly, once you develop your budget, make sure to stick to it or
else you’ll have simply wasted your time.
- Build an Emergency Fund: With a safety net of cash to fall back on, you won’t be as likely to fall behind on your bills in the event of emergency expenses or unplanned joblessness. Your goal should be to gradually save about a year’s worth of after-tax income. In other words, set aside a little bit every month until you’ve got a nice cushion.
- Improve Your Credit: This might sound a bit counterintuitive, seeing as more credit could mean more debt. But improving your credit standing will have a dramatic impact on the cost of your debt. And reducing the cost of your debt will allow you to pay it off faster. Better credit can also make it easier to find a job or a place to live, both of which impact your bottom line.
- Try the Island Approach: The Island Approach is a strategy that involves using a collection of credit cards, with each serving a specific purpose. For example, you could transfer your existing debt to a 0% balance transfer credit card to save on finance charges and get out of debt sooner. And you could use a rewards card or two – perhaps one with travel rewards and one with cashback, or maybe a store credit card – for purchases that you’ll be able to pay off by the end of the month. This will enable you to get the best possible collection of terms. It will also tell you when you’re overspending. Finance charges on your everyday spending cards will signal a need to cut back.
- Repay Your Most Expensive Debt First: Most people with serious credit card debt have multiple balances. If that’s the case for you, try the “avalanche method.” That means putting the majority of your monthly debt payment toward the balance with the highest interest rate and making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process until you’re debt-free.
- Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to explore whether higher-paying opportunities exist for people with your background or consider acquiring some new skills to make yourself more marketable. This may require a bit of an investment in yourself, but as long as you get a worthwhile return,
it’s money well spent.