Welcome back to “Ask an Advisor,” the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.
In this column, we often field questions from people trying to take their finances to a higher level. Readers have asked how to save for retirement, prepare for a new baby, build a home or even help save the planet.
But until now, we’ve never talked to someone who’s just trying to break even. And it’s about time we did, because many Americans are struggling to do just that.
Debt is a massive and growing problem in the United States. In the fourth quarter of 2023, Americans’ total household debt reached $17.5 trillion, according to the Federal Reserve — a $212 billion increase from the previous quarter.
In particular, credit card debt has skyrocketed. In the final three months of 2023, Americans’ credit card balances rose by $50 billion, reaching a total of $1.13 trillion. According to the Fed, 8.5% of those balances became overdue — in fact, serious credit card delinquencies increased across all age groups.
And with interest rates at 20-year highs as the Fed battles inflation, this is no time to be in debt. Today the average interest rate on a credit card is 20.75%, according to the finance website Bankrate. With interest that high, even a small debt can turn into the beginning of a vicious circle.
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One of our readers finds himself caught in that trap. Through a combination of circumstances and personal decisions, a young media worker in Washington, D.C. has ended up knee-deep in debt on multiple credit cards. To break the cycle, he turned to the experts for help.
Here’s what he wrote:
Dear advisors,
This isn’t easy to say, but I’m in over my head in credit card debt. I live in Washington, D.C., and I spend more than half my income on rent. In addition, I’ve had a habit — which I’m working on — of buying expensive electronics on credit. At this point I owe about $12,000 in total, spread across seven different cards. What do you recommend doing to get this under control?
Sincerely,
Indebted in D.C.
And here’s what financial advisors wrote back: