The Solution to Credit Card Debt, by Jared Thomas Higgins

Credit card debt is a growing problem in the United States, and with it comes delinquency: making payments more than 3 months after their due date. Being delinquent on credit card payments is a large problem because, in addition to accruing progressively more interest the further behind one gets, it has a very adverse impact on one’s credit score. It is also a relatively common issue, as in the United States alone, there is more than $15 billion in delinquent debt. The question that naturally follows is how to resolve this problem. Limiting credit card loans may be one way to go about it, but ultimately, that action will not fully solve the issue. Instead, the best ways to mitigate it are to provide help to those who cannot afford credit card payments by reducing their minimum payments and interest rates and to encourage and spread financial education and literacy to consumers.

One way to resolve credit card delinquency is to reduce minimum payments and interest rates for the unemployed. Unemployment is a major factor in being unable to pay off credit card debt. This only makes sense; a reduced income will reduce one’s ability to repay companies. In the worst case, it can take many months to find a job. If one is already indebted when he loses his job, it becomes increasingly difficult to meet the minimum payments. As a result, he falls behind if he doesn’t find a job soon. To help with this issue, credit card companies could offer a lower minimum payment and interest rate on unpaid debt to those who can provide proof of unemployment. The company would check their employment status every month (including whether or not they are actively seeking employment) until the consumer is re-employed, at which point the standard minimum payment and interest rate would be reinstated. Not only would this be helpful to consumers, but it would help the companies themselves because it would provide more of a guarantee that companies will get their money back—a much safer practice than risking their money on debts that may not ever be fully repaid. In addition, it would give the company a more positive reputation, making consumers more likely to obtain credit cards from it instead of its competitors.

The same practice described above can be extended to people suffering other common financial burdens. For example, two other major contributors to delinquent credit card debt are student loans and severe medical conditions. High student loans can greatly hinder someone’s ability to repay debt owed on credit cards. As such, if a person provides proof that her outstanding debt on student loans is higher than a minimum threshold, her minimum payment and interest rate would be reduced. Medical conditions also dampen repayment ability. If someone has a condition that is poorly covered by his medical insurance, his medical bills can be exorbitant; therefore, documentation that proves (1) he has a serious and chronic condition that necessitates medical treatment and (2) his insurance does not cover a certain percentage of the cost of treatment (say, for instance, at least 50%) should be enough to warrant reduced minimum payments and interest rates. Just as with unemployment, this practice would be of no cost to credit card companies and would be a safer practice to follow than allow consumers to become progressively more indebted. Even so, companies might be hesitant to implement the practice, as it would cause them to make less money than they currently do. Fortunately, there is another way to reduce delinquent debt that does credit card companies virtually no harm.

The most effective way of diminishing delinquent credit card debt is to educate the public about personal finance and financial literacy. Perhaps the largest reason why people go into debt in the first place is ignorance in regards to personal finance. When it comes to credit card debt, consumers often get in trouble because they spend more than they know they will have when the payment is due. This leads to an outstanding balance on credit cards after making the payment. This balance begins accruing interest, slowly causing the consumer to go further and further in debt. Teaching the public about the risks of buying on credit and ways to avoid falling into this trap (such as making and adhering to a monthly budget) would help greatly reduce the amount of delinquent credit card debt in the United States. This practice is already applied in some states as a requirement for high school graduation, but expanding education in personal finance across the country would help create a more fiscally responsible society, thus decreasing indebtedness across the nation.

As it stands now, the issue of delinquent credit card debt is growing in the United States. Luckily, there is a myriad of ways to solve the problem. For one, credit card companies could become more active with groups who are susceptible to delinquency such as the unemployed, people with severe medical conditions, and former students paying off student loans by temporarily reducing minimum payments and interest rates. Another way the issue can be solved without using credit card companies is by spreading financial education in order to make consumers more aware of how to handle money responsibly. Either way, the state of consumer debt in the U.S. makes it clear that if consumers hope to control their debt, changes must be made sooner rather than later.

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