Consumer credit card debt hit a record high of $1 trillion in early 2018 (per Wallet Debt), and on the rise, too, is Americans’ struggle to climb their way out. Financial stress is affecting not only relationships, but sleep as well as our day-to-day lives. It seems impossible to escape as people struggle to make payments and fall further into a tailspin of compounding interest.
Affirming this predicament, a nationwide survey of more than 1,000 Americans with over $500 in credit card debt found that the majority of the survey respondents are concerned about their mounting debt. A third of those with credit card debt are losing sleep over it, while nearly a quarter said debt negatively impacted their relationship. However, though it may seem insurmountable, incremental steps can be taken to eliminate debt.
Desperate times call for desperate measures
While individuals may be eager to escape debt, many often don’t know how. In fact, half of the survey respondents said they don’t practice budgeting and an even larger majority (77%) carry a balance from month to month. Worse, 14% expect it will take more than five years to pay off their credit card debt. Most alarming – nearly one in 10 said they will never be able to pay off their debt.
The result? Desperate people, who are willing to give up aspects of their daily lives in order to rid themselves of this burden. To that end, 31% would forgo social media access for one year, and 8% would trek to Antarctica for two years. Some are even willing to give away their pet or a kidney (7% each) in order to have their credit card debt completely forgiven. But, it doesn’t have to be this way.
The solution isn’t all that extreme
Without selling a kidney, more than 40 million homeowners have access to an attainable escape from debt — but many Americans aren’t aware of it. Homeowners collectively have an estimated $5.8 trillion in tappable equity — the highest level on record (according to Black Knight Data Analytics). This hidden source of wealth can help to lower monthly credit card payments and ease financial stress. However, a lack of information leaves many unaware of how it can be leveraged.
By tapping into home equity, homeowners can reduce their yearly payments by thousands, and effectively break the cycle of high-interest debt. The key is education. For instance, here’s a tip the average homeowner may not know: Even with a low-rate first-lien mortgage, many second-lien products carry a much lower rate than credit cards. Second-lien mortgages allow you to extend payments over time. With these added funds you could establish a rainy-day account, so the need to use a credit card for a financial emergency is reduced. (Note: By refinancing and consolidating your credit card debt into your mortgage payment, your total monthly debt obligation may decrease, however, the total finance charges you pay over the life of the loan will increase.)
Technology can empower homeowners to break the debt cycle
Refinancing a home has traditionally required time and research by the consumer. Now, new technologies are putting the power in the consumers’ hands. Homeowners can understand their whole financial picture and receive personalized help right from their smartphones, without complex budgets, calculators or unnecessary headaches. Not only that, digital tools can educate homeowners and break down the pros and cons of the various options available to them — like a cash-out refinancing of their current mortgage, a second mortgage, a home-equity or personal loan.
No one should lose sleep over the burden of debt.