Why carrying credit card debt is not healthy, wealthy and wise

Why carrying credit card debt is not healthy, wealthy and wise

Ann Carrns

31.10.2021

Carrying credit card debt isn’t just bad for your budget. It may also affect your health. The stress of carrying card debt through adulthood is linked to poor health, including joint pain or stiffness that interferes with daily activities, a recent study from the University of Missouri found. Beyond the worries about repaying debt, one reason for poor health may be that people with high debt have little money left to pay for resources that protect their health, the study said. The findings come at a time of increased financial insecurity for many Americans as a result of the pandemic, though the study noted that the level of unsecured debt, like credit cards, payday loans or medical bills, has been rising more quickly than income over the past several decades.

The new research tapped department of labour data to analyse the financial health of almost 7,900 baby boomers over more than a decade, from age 28 to 40, as well as their physical health at age 50. It found that people who carried consistently high levels of unsecured debt were 76% more likely to have pain that interfered with their daily life than people with no unsecured debt. People who carried debt over time reported worse physical health late in life, said Adrianne Frech, a medical sociologist and associate professor at the university’s School of Health Professions who is the study’s lead author. And the effects lingered even if the debt had been repaid, she said. People who had paid down their debt over time were still 50% more likely to have pain that impeded regular activities.

The study builds on earlier research that found that unsecured debt is more burdensome than other kinds of debt because it has higher interest rates and is often borrowed during times of desperation. “Unsecured debt is stressful to repay,” Frech said. Poor health and high debt can feed a cycle that’s hard to break, she said. People take on debt, and the stress affects their health, which, in turn, may limit their ability to work and pay off the high-interest debt. Simply telling people to manage their money better isn’t enough, Frech said. “We must address the systemic inequalities that create these desperate circumstances in the first place,” she said.

The study period predates the 2008 financial crisis and the pandemic-induced economic downturn. It didn’t include student debt, which many borrowers are having trouble repaying well into their 30s and 40s. After growing for years, credit card debt fell in early 2020, as Americans cut back on spending and paid down balances during the pandemic. Delinquent accounts fell because of federal stimulus programmes as well as voluntary forbearance offered by banks to struggling borrowers. The average credit card balance was $5,525 this year, down from about $6,500 in 2019, according to credit bureau Experian.

Some answers about managing credit card debt:

What is the best way to pay down credit card balances?

Because credit cards typically charge double-digit interest rates, most financial advisers agree that you’ll save the most money if you focus on paying down the card with the highest interest rate first. “I prefer the avalanche method,” said Benjamin Jacobs, a fee-only financial planner in Athens, Georgia, using a common name for this approach. Here’s how it works: Make the minimum payment on all of your cards to avoid late fees, but put any extra money you have toward the highest-interest balance. When that balance is paid off, move on to the next card and so on. But some people may be more motivated by paying off the card with the smallest balance, regardless of its interest rate. The mechanics of this approach, sometimes called the “snowball” method, are the same: Pay the minimum on all cards, but put extra cash to the smallest balance until it’s gone, then move to the next card. “I like the snowball, because you have instant success,” said Melinda Opperman, president of Credit.org, a nonprofit financial counseling agency in Riverside, California. If you feel overwhelmed and are falling behind on payments, you may consider seeking help from a nonprofit credit counseling agency. Those agencies can help assess your situation and negotiate a plan with your card companies to allow you to pay off balances over time — typically two to five years.

How can I avoid overspending during the holidays?

Shoppers expect to spend almost $1,000 this season on gifts, food, decorations and other holiday-related purchases, according to the National Retail Federation’s 2021 forecast. But Opperman said that many clients have told her they are still paying off credit card bills from last year. She suggests focusing on enjoying time spent with loved ones during the holiday season rather than buying pricey gifts. She said she asks clients: “Do you remember what gift your sister or brother bought you last year?” Often, she said, they don’t recall. But they do remember playing a fun game or sharing a meal. “It’s more about the memories of the time spent with family and friends.” Jacobs recommends breaking out the credit card only for items you know you can pay off within a month. He also suggested starting to build an emergency fund, if possible, of three to six months of living expenses. That way, you’ll be less likely to rely on high-interest card debt if you have an unexpected bill.

A basic step to avoid overspending is to make a plan before shopping for how much you will spend, said Abigail Sussman, an associate professor of marketing. “Setting a low spending goal can be helpful,” she said. NYT

The stress of carrying card debt through adulthood is linked to poor health, including joint pain or stiffness that interferes with daily activities, a recent study from the University of Missouri found