While your credit card debt problems may seem hopeless, it is not impossible to pay it off. Over the past ten years, the U.S. has been recovering from the recession that followed the housing bubble, or credit bubble in 2007. Bankruptcy and foreclosures marked this specific recession. It left many consumers with low credit scores. As the economy has gotten stronger, people have had a chance to repair their credit. At the same time, they were able to regain confidence in borrowing. Thus, the US is now seeing a rise in consumer debt. Recently the total consumer debt per household hit a new high of $12.7 trillion. Most of that debt is made up of mortgages, student loans, auto loans, and of course, credit card debt.
California is the most populous state in the US. Its residents cover the full spectrum of socio-economic status (SES). The average credit score in California is 661. This places the state among the top third of states in the U.S. Nonetheless, a large number of Californians are burdened by debt and are seeking solutions.
Credit Card Debt In California
Let us start with the credit card debt problems. While there are many ways of borrowing money, credit cards are the most common type of consumer debt in 2017. This is throughout the U.S. To understand how debt affects residents of California, it is helpful to look first at their credit card debt problems.
The average amount of credit card debt per individual is $8,971 in the state of California. However, the amount and severity of debt vary widely from city to city. In cities where annual household incomes are below average for the state, such as Huntington Park ($46,801) and Lynwood ($56,878), the debt-to-income ratio is close to 15%. In cities with a higher average income, like Palo Alto and Cupertino (both with average incomes of over $200,000 per year), the actual amount of debt is higher, but the debt burden is relatively low, close to 5%.
California Mortgage Debt
The largest amount of debt in California, as in most of the country, comes from home loans. This is caused by the high property values in many parts of the state. Californians carry a higher-than-average mortgage debt compared with the rest of the nation. According to the 2016 census data, over 70% over homeowners were paying off a mortgage. The average amount they owed was $334,925, compared with a national average of under $200,000.
Student Loan Debt In California
Student loan debt is rising throughout the country as college tuition costs increase. It is estimated that one out of every four Americans has student loan debt. In 2017, more than half of all college graduates in the state of California were paying off student debt. The average outstanding balance was $22,191. In 2016, a little over 10% of Californians were delinquent on their student loan payments.
Auto Loan Debt In California
Another category of debt that is on the rise throughout the U.S., and especially in California, are car loans. In 2016, California car owners owed an average of $18,324 per car. This is a little higher than the national average. Economists note that the rate of new auto loans is increasing rapidly. It indicates a rise in consumer confidence. It also show the tendency of lenders to make loans that borrowers can’t afford. However, Californians are slightly below the national average in terms of auto loan delinquency.
Other Forms Of Debt
Californians also have medical debt, personal debt to friends and family members, and short-term loans from direct lenders. Unfortunately, some individuals find themselves in a deep hole of debt – caused by borrowing from one creditor to pay off another. This leads to the accumulation of higher interest rates and fees. Oftentimes, people turn to emergency short-term loans as a result of a sudden decrease in income or increase in expenses.
Unemployment Rate In California
The main reason for a decrease in income is a job loss followed by a period of unemployment. It has been on a steady decrease across the nation since 2010. However, California’s unemployment rate (4.9% in October of 2017) remains somewhat higher than the national average (4.1%). The construction and tech industries are two of the biggest creators of new jobs in the state. But growth may be slowing down in other sectors, like farming, as stricter immigration control has tightened the labor market.
Cost Of Living In California
A high cost of living can be another factor that influences patterns of consumer debt. This is true when the cost of living goes up or the individual moves to a new area where he or she has higher expenses. Considering basic and essential expenses, like housing, utilities, food, healthcare, and transportation, the cost of living in California is currently 43% higher than the national average. However, costs range widely from one county to another. For example, in one of the poorest counties, housing prices average $158,000. In one of the richest counties, houses sell for an average of $641,000.
How Can California Residents Get Help With Debt?
First of all, California residents should be aware of the laws regarding consumer debt – including credit card debt problems. California has put in place a number of laws designed to protect citizens from unfair collection practices. For one thing, debt collectors (and original creditors) are forbidden to harass debtors or mislead them in any way. State law also prohibits creditors from collecting a debt that is more than four years old. It is one of the shortest statutes of limitations in the U.S. California debtors can also refuse paying a debt if a charge is disputed or if there is a billing error. However, California law does not limit the fees credit card companies can charge for various transactions or late payments.
Despite these legal protections, some consumers find themselves so deeply in debt that they can’t see an easy way out. Two options for California residents are debt consolidation and a debt relief program like debt settlement.
Debt Consolidation
Debt consolidation is the process of taking out a single new loan to pay off existing loans. This can be a good solution for your credit card debt problems. The new loan is typically secured with collateral, such as home equity. It is offered at a lower interest rate than current creditors are charging. Personal loans from individuals may also be available through a debt relief or credit counseling organization. In addition, payments can be spread out over a longer period of time so that they are smaller and easier to manage.
Clients who take out debt consolidation loans get relief from multiple bill payments and impatient creditors. They also save money in interest and pay out less per month. Of course, the borrower may end up paying more as a whole. After all, the loan payments are usually spread out over a longer period of time. Nonetheless, most people find the trade-off worthwhile in order to get relief from overwhelming debt.
Debt Settlement
With debt settlement, a debt relief counselor negotiates, for a fee, on behalf of the debtor. A lump sum settlement in a lower amount of what is owed will also be arranged. Most creditors would rather have a partial payment than getting no payment at all. This is what might occur if the debtor ends up in bankruptcy. Debt settlement is particularly recommended for clients with a high credit card debt problems. They will benefit the most from the service. The process involves a discussion with a debt relief specialist to determine how much of a settlement the client can afford. Also, they will discuss how long it will take to set aside the funds. He or she will then approach the creditor to arrange terms. Bear in mind that creditors are not obligated by law to accept a settlement; however, many are willing to.
Tips For Debt Relief
The following are a few tips for success with a debt relief program.
- First of all, make a budget to ensure that debt payments (or savings toward a settlement) are made every month. The budget should be realistic and leave room for predictable but irregular expenses. This includes home and car repairs, as well as some entertainment.
- Track income and daily expenses with a spreadsheet or on paper. This helps you increase your awareness of your spending habits and make changes as necessary.
- Put away or destroy credit cards and avoid online shopping in order to avoid further debt. You should get rid of each credit card as soon as it is paid off. Not only that, you should try to live a cash-only existence until the debt is paid off completely.
- Do not take out any other loans while paying off or settling a debt. It is crucial not to increase your debt burden in any way. At least while you are attempting to pay off an outstanding loan.
- Once the debt is paid off, continue making those payments into a savings account or a retirement savings plan, like a 401(K).
If you are a California resident with too much debt, don’t give up hope. Credit counselors can help you make a plan to fit your needs. More importantly, they can set you on the path to financial freedom.
To help you keep credit card debt problems from ruining your finances, here is a video that discusses the common causes of this type of debt.