Are New Yorkers Sleepwalking into a Debt Crisis?
A growing number of New Yorkers are at risk of total financial ruin.
A recent survey from TransUnion has pinpointed a "concerning pattern" among those who live in the Empire State. Debt consolidation is no longer a safety net.
In recent years, debt consolidation via personal loans has been lauded as a smart financial move for people grappling with burdensome credit card debt. The strategy seemed simple: secure a personal loan at a lower interest rate to pay off high-interest credit card balances. But new findings indicate this relief might be short-lived, leaving many New Yorkers back where they started, if not worse off.
In all, those who enjoyed a reduction in their loans found their balances returning to the original amount around 18 months later.
Why Is This Happening?
The study found the average New Yorker with credit card debt deal with higher balances about 3 months after debt consolidation.
Based on data from Experian, the average New Yorker has a credit card balance of $6,491.
Deacon Hayes of WellKeptWallet.com looked into the data and offered an explanation about why New Yorkers are flirting with financial ruin.
Using personal loans to pay off credit card debt only works if borrowers modify their credit card habits after consolidation. Unfortunately, it is increasingly difficult to do so. This is because everyday items at the store cost more. Eating out costs more. Borrowing money to buy a home costs significantly more.
With higher prices and wages not keeping pace with inflation, people have turned to credit cards to offset the difference. The challenge is that many of these credit card interest rates are over 20% which can make it hard to pay off when you are just paying on the interest.
Of course, inflation is throwing a wrench in a lot of people's financial plans. However, some people are more at risk of a financial predicament.
"Those with a high debt-to-income ratio will be at most risk - especially those with student loans. On October 1st, the student loan payments are going to resume which will only add to the difficulty of Americans to get ahead," said Hayes.
How to Handle Debt
Hayes said there are four steps people can take to slash their debt.
He suggests paying off accounts one at a time, via the debt snowball method. He says borrowers should tackle the account with the lowest amount and then work their way up as they pay them off.
The one-account-at-a-time strategy led subjects to work harder and repay their debts more quickly because they feel they are making greater progress toward the ultimate goal of becoming debt free.
He added borrowers need to look at everything they spend money on and see what cuts can be made to reduce their expenses.
Hayes also suggests borrowers embark on a side hustle and direct that extra cash flow to paying off their debt.
On that note, Hayes also recommends using extra income like tax refunds, inheritance, and work bonuses to settle accounts.
In a world where financial pressures are mounting, people are sleepwalking towards a potential debt crisis. Debt consolidation, once seen as a lifeline, has proven to be a fleeting solution for many. The rising tide of credit card debt, coupled with soaring costs of everyday living, has pushed many back into the jaws of financial uncertainty. It's a precarious situation. And now, with student loan payments set to resume, those with high debt-to-income ratios, especially those burdened by student loans, face the greatest risks. As we navigate these uncertain times, remember: It's not about how much you earn; it's about how well you manage what you earn.
With credit card balances soaring nationwide, New Yorkers are apparently suffering the most.
Hopefully those struggling with high balances will find a way out of the crazy financial maze soon.
Causes of Credit Card Debt
Gallery Credit: Dr. T