According to a recent survey conducted by Northwestern Mutual, Americans' personal finances following the pandemic can be divided into two categories. On one hand, there are those who have emerged with little to no debt, and on the other hand, there are those who are drowning in debt. The survey found that 35% of Americans said they are carrying their highest level of debt ever or close to it, while 43% said their debt is close to or at a historic low.
Credit cards were identified as the main source of personal debt, with credit card balances reaching a near-record high of $917 billion in the first quarter of 2023, according to a TransUnion report. The average balance per consumer also saw a significant increase of 14.4% year-over-year to $5,733.
Those with personal debt reported spending 30% of their monthly income on debt repayment, and many expect to remain in debt for years. Northwestern Mutual's Chief Customer Officer, Christian Mitchell, emphasized the importance of being proactive and intentional about managing debt and incorporating it into a broader long-term financial plan.
Student loans were also identified as a significant source of debt, particularly for younger Americans. The U.S. Supreme Court recently blocked President Joe Biden's student loan forgiveness plan, which would have canceled up to $10,000 in federal loans per borrower making less than $125,000 a year. While borrowers with federal student loans have other options for relief, such as refinancing, these alternatives can be more challenging to qualify for.
To help reduce credit card debt, Americans can consider using a balance transfer credit card or a debt consolidation loan. Balance transfer credit cards allow individuals to consolidate multiple debts into one monthly payment, often with a lower APR for a limited time. Debt consolidation loans can also help convert multiple debts into one payment, but it's important to consider the terms and repayment terms.
In conclusion, Americans' post-pandemic pocketbooks reveal a stark divide between those burdened by debt and those who have managed to emerge relatively unscathed. Managing debt and incorporating it into a long-term financial plan is crucial for individuals in both situations. Exploring options like balance transfer credit cards and debt consolidation loans can provide relief for those struggling with credit card debt.