Thomasville Times

Americans’ debt is highest ever



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Many Americans are mired in debt. And they struggle to find ways to extricate themselves. The Census Bureau has just reported that 38.5 percent of households, 89 million people, struggle each month to pay their bills.

A May 15 release by the Federal Reserve Bank of New York underscored the peril of many people. It found a leap in total household debt in the first quarter of 2023, increasing by $148 billion to $17.05 trillion, the highest level ever. Debt is now $2.9 trillion higher than at the beginning of 2020, prior to the pandemic.

If you find yourself in a major debt crisis, keep in mind some time-tested strategies to eliminate debt. Let’s review them.

Perhaps the three most popular approaches are the debt snowball, debt avalanche, and debt consolidation. But before using any of these, you must develop a budget to determine how much you can pay toward debt reduction each month.

The debt snowball strategy involves attacking the smallest debt first and getting rid of it before moving on to the next smallest amount. You should disregard the debt with the highest interest rate. The rule applies even if the smallest debt is interest-free. Apply the funds you have budgeted each month until all debt is paid off. This strategy emphasizes the psychological effect of reducing debt.

Proponents of the debt avalanche attack from a different direction. The strategy is to start with the debt with the highest interest rate. To use this approach, take all of your debt and array it from the highest interest rate to the lowest rate. Then apply the funds you have budgeted for debt payment to the debt with the highest interest rate. Continue paying off debt each month until all of it is eliminated.

Debt consolidation represents a completely different approach. It involves combining all existing debt into one loan and concentrating your debt payments into one monthly bill. There are two basic ways of doing this. Probably the better approach is to secure a fixed rate debt consolidation loan. Use the proceeds of the loan to retire the debt and then pay back the loan in installments over a fixed period.

All three methods work. There are advantages and disadvantage of each. To be successful with any of them, you first need to develop a strategy and adhere to it. The feel of being free of the albatross around your neck will be exhilarating!

Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at wccurtis39 @gmail.com.

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