People able to tackle debt in a post-pandemic spending spurt
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Americans are willing to spend money to do something good for themselves – and 44% are willing to go into debt for it, a report from CreditCards.com shows.
Millennials between the ages of 24 and 40 are the most likely to take on more debt (59%), followed by Gen Zers between the ages of 18 and 24 with 56%. Only 40% of Generation Xers, ages 41 to 56, and 32% of Baby Boomers, ages 57 to 75, said the same thing.
When it comes to what respondents are willing to be billed for, car purchases and other car expenses were high on the list.
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More than two-thirds, or 67%, plan to spend money in the second half of the year, with travel and out-of-home entertainment being the most popular purchases.
Everyone has the right to self-medicate after surviving the Covid-19 pandemic, said Ted Rossman, senior industry analyst at CreditCards.com.
“You can go out and show off a bit,” he said. “Do it with savings.
“Don’t get into debt for this.”
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Credit card rates are getting higher and higher, with the average card charge being over 16%. If you don’t have a good credit score, you can easily pay 20 to 25%, noted Rossman.
If you are looking to spend money, do some legwork first to come up with a realistic amount.
List your financial goals in a table, including long-term goals like retirement savings, said Winnie Sun, co-founder and chief executive officer of Sun Group Wealth Partners in Irvine, California.
Once you have this list of financial goals, start with a decision that won’t break the bank. Save a little bit each week or month until you can pay for it.
“Debt creates greater financial worries and inflated interest payments along the way,” said Sun, a member of the CNBC Financial Advisors Council.
If you have a rewards credit card, you are responsible for collecting points for flights, hotels or rental cars by paying it off every month. When you run into debt, it can outweigh the rewards.
If you have a little debt to bear, Rossman suggests buying a card with a zero percent sale. Keep paying without adding any new purchases to the card.
Another option is hybrid programs like Citi Flex and American Express Plan It, which allow cardholders to pay for certain purchases in installments. You get a specific schedule and usually lower interest rates.
“This can be something that lowers your interest bill and, psychologically, avoids that minimum payment trap that can drag on,” Rossman said.
A fresh start
Before going back to old habits, think about how your financial situation could have improved during the pandemic if you were lucky enough to keep your job.
In the past year, Americans actually lowered their debt and saved more money.
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Total credit card balances fell from $ 927 billion at the end of 2019 to $ 770 billion in the first quarter of 2021 – a 17% decrease, according to the New York Federal Reserve. Meanwhile, the personal savings rate also reached record highs during the pandemic, reaching 33.7% in April 2020 and is also high a year later at 14.9% for April 2021, according to the St. Louis Federal Reserve.
Rossman urges people to stick to newly discovered good personal finance habits.
“We have a chance,” he said. “Here is a chance to write a different kind of story.”
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.