Strategies to pay down mounting credit card debt

The average credit card debt per borrower has increased by 8.5% year over year to $6,218, TransUnion finds. With consumers under pressure, it can be difficult to find wiggle room in budgets to pay down credit card debt.

Discover Personal Loans Vice President Dan Nickele joins Wealth! to give insight into current levels of credit card debt and how Americans can manage it.

Nickele explains how personal loans can aid in debt management: "One of the great things about a personal loan is that you can check your rate without impacting your credit report, so you can explore your options. And I think options are a consumer's best friend, especially somebody who's trying to manage their debt. So I would encourage somebody who thinks they might have a savings opportunity to go out and figure out what rates they can actually earn, explore their options for payments and rates."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video transcript

Wednesday's CP I report showed that while the pace of inflation may be moderating, consumers are still feeling the pressure on their wallets.

One area that this is showing up in credit card debt where the average debt per borrower $6218 that you're seeing it on screen up 8.5% from last year 2023 according to Transunion, for more on how consumers are dealing with their debt.

We welcome in Dan Miley, who is the Discover personal loans?

Vice president.

Ok.

So why is it that we're seeing credit card debt piled to this level here?

What are some of the leading leading factors that you can point back to?

Yeah, Brad, thank you for having me.

So you said that inflation I think is the primary cause.

Um Discover personal loans did a survey last year and the top top reason for for consumers feeling stress was inflation 58%.

Um And as a result of that inflation, they're seeing higher prices in pretty much all areas of their life and in some cases they're using debt to finance it.

And so with that in mind, I mean, we're, we're starting to get into the conversation now of ok, if someone has this debt that is mounting up, where do they need to start thinking about loans in order to pay down that sum of that debt?

And what should the evaluation be there?

Your, your earlier guest was talking about the different rates that they might have on different types of debt.

I think the same applies here.

Um Credit card average APR S in 2023 were at 23% that is up from 16% during a period of the pandemic.

Um And so by comparison, a personal loan could offer them the opportunity to refinance that debt as low as 6.99% if they have outstanding credit.

So there's an opportunity for substantial savings if somebody has great credit and they can roll that, that higher cost debt into something with a lower fixed rate payment.

Is there a general rule of thumb for a percentage improvement that a person should be looking for when they are consolidating debt?

I don't know if there's a specific percentage improvement.

Um One of the great things about a personal loan is that you can check your rate without impacting your credit report so you can explore your options.

And I think options are a consumer's best friend, especially somebody who's trying to manage their debt.

So I would encourage somebody who thinks they might have a savings opportunity to go out and figure out what rates they can actually earn, explore their options for payments and rates.

Are there some tips as well that you've been able to kind of have in terms of the relationship between discover financial and its customers on how to pay down debt, but also where to stop spending.

Maybe because that's part of the other equation making sure that you're not racking it up on a continual basis.

Yeah, that's right.

Everybody needs a budgeting strategy.

Um The 50 30 20 rule, 50% towards needs 30% towards wants 20% towards savings is a very popular strategy also trying to increase incomes.

Um But that's those are difficult things to do.

And so making sure that you're getting the best price you can on your debt is something that sometimes people overlook.

Um So what I would suggest is going out there exploring all options, having a good strategy to manage the, the the spending is of course, top of mind.

Um But going out and looking at any opportunities to refinance that at a lower rate, uh Our, our producers probably hear me ask this all the time and they're about ready to throw a stapler at the control room monitor when I say this.

But we've seen the way that the consumer is described change so frequently and, and recently over the past year from the consumer is resilient then to the consumer healthy.

Now to what we're hearing from some of the retail CFO S and, and C Suite saying that the consumer is relatively stable here.

If the consumer is spending or tapping or swiping the credit card at this frequency.

What does that tell us about the state of the consumer?

From the discover perspective?

I think we saw earlier, as you mentioned, the Bureau of Labor Statistics, um Consumer price index is better than it was in prior months.

Um but that's of little relief to consumers.

So they're still seeing the effects of higher prices.

That's what it tells us about the state of the consumer.

Um Typically they would prefer to avoid debt.

Um I don't think that people in a situation where they're managing debt should be ashamed of it.

Um They, they need to be able to have that conversation open and honestly and try to get themselves out of it.

Um There are some positives here.

We know that 80% of customers who take a personal loan to consolidate debt report that they feel less stressed about their financial situation.

So there are ways to manage their debt better and meet their overall financial goals.