Many Americans rely on credit cards to get them through tough times. Unfortunately, this can lead to racking up a lot of high-interest debt. During the COVID-19 outbreak, some people are having to pay more for daily necessities even in the face of reduced income or even unemployment. It is a difficult decision to make but bankruptcy may be the best option for a family facing financial difficulty.
Credit Card Debt Before Coronavirus
According to a study by CreditCards.com, an estimated 110 million Americans had outstanding credit card debt before the pandemic. 59% of Americans had credit card debt before the stay-at-home orders went into effect and before millions filed for unemployment benefits. Of those carrying debt, more than half (61 million) were carrying debt for one year or more.
Almost 27 million Americans have been carrying credit card debt for three years or more consecutively, with more than half of those carrying debt for more than five years. Carrying credit card debt is not cheap. Credit cards have some of the highest interest rates of other sources of borrowing.
The average rate of credit card interest is over 15%, according to Wallethub. However, interest rates for people with a lot of credit card debt can be much higher. The average interest rate for individuals with “fair” credit is over 23%. Store credit card interest rates can be over 25%. Paying the minimum balance on high-interest credit cards can end up taking years to pay off and cost thousands of dollars in interest.
For example, a $1,000 purchase on a 20% interest rate credit card may only have a $25 minimum balance. Paying only the minimum would take more than five and a half years to pay off and end up costing over $1,660 in total. That time and extra money do not include any other additional purchases, which could increase the interest and payoff time.
Using a Credit Card to Pay for Necessities
Some people think people with credit card debt are making unnecessary purchases. However, the reality is that many people are using credit cards to purchase necessities, including food and healthcare. According to the same survey above, 13% of people with credit card debt are using the card to pay for medical bills. The alternative to using the credit card may be failing to get care, which could lead to more serious illness or damage later on.
Less than a third of the people with credit card debt were using the card for discretionary spending, like vacations or retail shopping. This leaves the majority of in-debt credit card users paying for things they need, like car insurance, home repair, internet access, child care, utilities, and groceries.
Credit Card Debt and Bankruptcy
Bankruptcy is a way for people who are in debt to financially recover and get a new start. Chapter 7 bankruptcy can discharge bankruptcy debt in four to six months, stop creditors from calling, and give you a chance to start over. Chapter 7 bankruptcy is also known as liquidation bankruptcy. Individuals will generally have to turn over their assets to be sold off and distributed to creditors. However, there are a lot of exceptions that allow individuals to keep equity in their home, vehicle, firearms, jewelry, and other assets.
Missouri Bankruptcy Lawyer
Getting started on filing bankruptcy today can be a way to get a fresh start after the financial crisis. If you have questions about filing for bankruptcy in Missouri, contact the Joshua Wilson Law Firm in Raymore today. Contact us online or by calling (816) 331-9968. We maintain a virtual capable law office to keep you safe.