Credit card debt is climbing across the United States, and many struggle to manage it. This issue is particularly acute for Gen Z and Millennial individuals. Bankruptcy filings for those aged 18 to 29 have increased by nearly 17% from the first to the second quarter of 2024, and they are up 13% compared to the previous year.
During the pandemic, relief measures temporarily reduced bankruptcy filings, but since then, debt among young adults has escalated, now totaling $1.12 trillion for those between 18 and 29 years old. Bankruptcy filings have surged by 50% since hitting a 24-year low in early 2022.
Rising interest rates have driven up minimum credit card payments, making it even harder for people to keep up with their financial obligations.
Here are some of the most common reasons for excessive credit card debt:
- Medical bills
- Car costs
- Mortgage or rent payments
- Home repairs
- Groceries
- Other daily necessities
Understanding these reasons can help you see why credit card debt is such a widespread issue.
When Should I Do Something About My Debt?
If you’re wondering whether it’s time to take action on your credit card balances, here are some signs that it might be unmanageable:
- Minimum payments on cards consume most of your income
- High credit card balances
- Using credit cards for necessities and maxing them out
- Constantly near or over credit limits and needing to live paycheck to paycheck
- Receiving collection calls or notices
- Having a debt-to-income ratio over 43%
Addressing your debt sooner rather than later can prevent you from falling for scams and “quick fixes” that can do more harm than good. It’s also essential to know your rights when it comes to debt collection.
How Debt Affects Credit Scores
A credit score is a number that reflects your creditworthiness, usually on a scale from 300 to 850. Scores above 700 are often considered good, and those over 800 are viewed as excellent. The majority of consumers have credit scores that range from 600 to 750.
Two primary types of credit scores exist: VantageScore and FICO. FICO scores range from 300 to 850, with a good score between 670 and 739. VantageScore’s newer models also use a 300 to 850 range, with 661 to 780 considered good.
Debt significantly influences your credit score. High balances and missed payments can lower your score, making qualifying for loans and credit cards with favorable terms harder.
To maintain and recover from poor credit, focus on making timely payments, keeping credit card balances low, opening accounts that report to credit bureaus and only applying for credit when needed.
How To Get Out Of Credit Card Debt Using Bankruptcy
Bankruptcy is a legal process that can help you eliminate or repay debt under the protection of the bankruptcy court. Individuals typically consider two main types of bankruptcy.
Here are the main features of both methods:
- Chapter 7 bankruptcy:
- Quickly eliminates most unsecured debts
- Stops collection calls and wage garnishments
- Process completed in a few months
- No repayment plan is required
- Potential loss of non-exempt assets
- Stays on credit report for 10 years
- Limited eligibility based on income
- Chapter 13 bankruptcy:
- Keep valuable assets like a home or car
- Debt repayment over three to five years
- Stops foreclosure and repossession
- Potential to reduce overall debt
- Requires regular income for repayment
- Stays on credit report for seven years
- Longer process than Chapter 7
- Monthly payments may be challenging
Alternatives to bankruptcy exist for dealing with credit card debt. These include:
- Debt consolidation
- Debt repayment plans, including snowball – paying off smallest debts first; or avalanche – paying off debts with the highest interest rates first
- Debt settlement
- Credit counseling
Exploring these alternatives can provide other ways to manage your debt.
Contact Iowa Credit Card Debt Bankruptcy Attorneys
If you need professional help to resolve your financial issues, including complex bankruptcy cases requiring litigation, contact us online or call 712-309-3738 to schedule a free consultation at our Council Bluffs office.
Under the Bankruptcy Code, our debt relief attorneys help people file for bankruptcy relief and advise on the best plan to relieve debt depending on your situation.