Emergencies sometimes force people in California to use their credit cards. Reliance on credit cards has resulted in American households owing an average credit card balance of $8,195. A person with roughly $8,000 in credit card debt who only makes the minimum monthly payments would need about 23 years to pay off everything at an average interest rate of 17.41 percent.
As of late 2018, Americans had a total of $3.93 trillion in consumer debt when not accounting for mortgages. California residents and other Americans are expected to add another 5 percent in credit card balances throughout the rest of the year. Therefore, it is believed that consumer debts will eventually hit $4 trillion in the near future. While it only took five years to go from $3 trillion in debt to $4 trillion, it may not be cause for alarm.
Debt has become a way of life for many in California and across the country. At best it's utilized with a big-picture plan in place consistent with using only as needed, resources to enable an ultimate pay off and not letting debt service overtake the budget. More problematic is when carrying credit debt is not optional, and it's a sign of crisis when only the minimum payments are made each month. If that's the case, it may be time to consider negotiating a debt-forgiveness plan.
Women in California might be in greater danger of falling into debt than men. According to data from Comet Financial, the economic disparity between men and women is not just about wages. Women have more debt than men do as well, and that wage gap may be one significant reason this is the case. On average, women have more than $6,000 in student loan debt compared to men and more than $1,000 in credit card debt and medical debt.
California residents may choose to get rid of their credit cards after paying down an existing debt balance. However, that may not be a wise choice. By getting rid of a credit card, holders may harm their credit score. This is because they will now have less credit to use and may also reduce their credit mix. These are both key factors when calculating a credit score.
Credit card debt nationwide is on the rise overall, but the average debt is declining. More people in California and across the U.S. are carrying credit card balances. According to data gathered by the Federal Reserve, 38.1 percent of Americans had balances on their credit cards in 2013; that number rose to 43.9 percent by 2016.
A recent study of more than 4 million anonymous credit reports found that 16 percent of them had listings for medical bills that were in collections. More than 2 percent of adults had medical debts of less than $200 that were submitted to collections companies. Furthermore, over half of the medical collections for the year studied, 2016, were for amounts less than $600. The study shows how medical collections are hurting people's credit in California and across the United States.
When debtors in California choose to approach a bankruptcy court, most of them have likely gone through a prolonged period of financial hardship. A report from the Notre Dame Law Review called this period of stress and deprivation "the sweatbox." Drawing upon long-term data from the Consumer Bankruptcy Project, the report identified a category of bankruptcy filers known as long strugglers. Between 2013 and 2016, 66 percent of the debtors surveyed by the organization struggled to repay debts for two years or more even when it meant forgoing food or medical care.
California residents and others who have poor marks on their credit reports may panic at the sight of them. However, it is important to know that they will almost all go away after seven years. The only exception is a Chapter 7 bankruptcy that falls off a credit report after a decade. If a person does file for bankruptcy, the impact is usually greatest for the first two years after filing before leveling off and declining afterward.
Many factors, from medical emergencies to job loss, could cause people in California to go into debt and fall behind on paying bills. Although many debtors struggle onward with the intention of catching up on their payments, they might benefit more from a bankruptcy filing, especially if their financial situations have little prospect of improving. Filing for bankruptcy could let people temporarily forgo payments on credit cards and medical bills so that they can purchase groceries and gas while the court addresses their cases.