Consumer debt has been steadily growing over the last decade, and now an overwhelming majority of Americans say that their debt is keeping them from meeting their personal financial goals.
Total U.S. household debt hit $18.39 trillion in Q2, according to the Federal Reserve Bank of New York. Housing debt was the driving force behind the growth, up $131 billion from Q1, but non-housing debt, which includes things like auto loans and credit cards, also grew by more than $51 billion.
For many Americans, this level of debt means high monthly payments. Those payments have a decidedly negative effect on their long-term financial health.
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About 71% of adults say that their monthly debt payments prevent them from saving, according to a survey from the National Foundation for Credit Counseling. Additionally, 17% say that their debt keeps them from planning for the future, and 18% feel that their debt is overwhelming.
“It’s a reality of where we are,” Experian Senior Director of Consumer Education and Advocacy Rod Griffin told CNBC earlier this month. “Some of it is a lack of knowledge and understanding of how credit works. Some of it is, in some cases, just our desire to have stuff, and some of it is the reality of the financial world we’re living in right now.”
Despite these historically high levels of debt, reducing that debt is a top financial priority for many Americans, according to a study by the Certified Financial Planner Board of Standards. Just under one-third of respondents said that reducing debt was their top New Year’s resolution, only bested by saving more money, which was the top resolution for 45% of respondents.
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However, wanting to reduce debt levels and actually taking steps to do so are two different things. Experts tell CNBC that many Americans aren’t taking advantage of the myriad of strategies that might actually allow them to achieve that goal.
Among experts’ favorite debt-reducing tools are creating a budget, asking for lower interest rates, and consolidating balances.
For those looking to take an even more aggressive approach to reducing what they owe, experts suggest working with nonprofit credit counselors.
“When you work with a credit counselor, they’re first going to work with your budget, look at your income sources, where your debts are, and work with you to find, potentially, a way to repay them,” Griffin told CNBC. “Then, [they] help you manage your finances going forward so you don’t find yourself in the same situation.”
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In some cases, counselors may recommend a debt management plan, which is designed to help you repay your debt in full through smaller payment amounts and lowered interest rates. Typically, these plans help resolve debt within four to five years and have a negligible impact on your credit score.
While these strategies may feel overwhelming to many, especially those facing high levels of debt, they’re a crucial way to move the needle for the 43% of Americans who told the NFCC their debt has left them focused on “just surviving instead of improving” financially.
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