Tips to avoid ongoing cycle of consumer debt
NerdWallet: Average household with credit card debt owes $10,563
(InvestigateTV) — About 20 percent of Americans said they fear they simply won’t be able to afford their debt payments due to ongoing economic uncertainty, according to a recent NerdWallet survey. Another 14 percent plan to pay only the minimum on their loans.
Sara Rathner, a credit card expert with NerdWallet, said that while making minimum payments is common for mortgages and auto loans, it’s a risky habit when it comes to credit cards.
“That’s simply because credit card debt is so high and you’re allowed to continue spending on your credit card even if you have debt,” Rathner explained. “So, you’re adding to the pile while you’re trying to subtract from the pile. And of course, if you’re going through a period of financial hardship, you’ve lost your job, making the minimum payment is a way to keep current and help preserve your credit score.”
Still, once your financial situation improves, Rathner recommended budgeting more toward your credit card payments to avoid staying stuck in a costly cycle of debt.
She added that while cutting back during uncertain times is common, it’s also when emergency savings should come into play.
“I just had to take my car to the shop and unexpectedly needed to replace two tires that weren’t going to state inspection,” Rathner shared. “And so, just like that I was out over $600 over the course of the total number of repairs that needed to be done to my car.”
Rathner acknowledged that saving three to six months of expenses can be difficult. But even setting aside $500 to $1,000 for emergencies can make a big difference.
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