In August 2018, Experian, one of the nation’s three consumer credit reporting agencies, released the findings from a study of nationwide credit card trends. According to that study, credit card debt in the United States grew from $734 billion in the second quarter of 2017 to $782 billion in the second quarter of this year, an increase of about 6.6%.
In Nevada, the rate at which credit card debt increased over the same time frame was substantially higher: 9.3%, to $7.44 billion. In fact, credit card debt over the last year has increased faster in Nevada than in any other state in the nation.
That could spell trouble for thousands of families in Las Vegas and around the state: Credit card debt, if not kept under control, can be a serious drag on a person’s finances and credit score. All Nevadans should understand how credit cards affect their finances, how to manage high levels of credit card debt, and how bankruptcy can help.
How Credit Card Debt Affects Your Finances
Credit card debt can help or harm your financial well-being, depending on how you use it. If you use it wisely, it can help build up your credit and make it easier to access low-interest loans. But if you aren’t careful, it can drive up the interest rates you’ll have to pay when you take out loans or even prevent you from getting a loan altogether.
Here are some examples of the risks and benefits in using credit cards:
- Risk: High interest rates. Over time, you end up paying more for goods and services by paying with a credit card (and letting your balance accumulate) than by simply paying for them in cash. That means you’ll have less money each month for other expenses, like groceries, utilities, or payments on a home or auto loan.
- Benefit: Improved cash flow. Cash flow measures the timing of your income and expenses. For example, if you get paid once at the end of a month, but all your bills are due earlier in the month, you could use a credit card to pay bills as they come due, and then pay your credit card off once you receive your paycheck, effectively shifting your income to earlier in the month.
- Risk: Lower credit score. Credit card debt can lower your credit score in several ways. Your credit score can be harmed if your credit card balance is close to your credit limit, if you have many credit cards, or if you pay late or default on your cards, to name but a few examples.
- Benefit: Higher credit score. On the other hand, prudent use of credit cards can actually help your credit score. Paying off your balance each month or keeping your balance below 10% of your credit limit are both good ways to use credit cards to build your credit.
Strategies for Managing Credit Card Debt
If you’re one of the countless Nevadans already struggling with credit card debt, you already know about the downsides of high credit card balances. Fortunately, there are steps you can take to help pay down your debt and reclaim control of your finances. Here are some tips for doing so:
- Stop using your credit cards. According to the first law of holes, if you find yourself in one, stop digging! If your goal is to reduce your credit card debt, you’re only hurting yourself by increasing it with more spending.
- Focus on one card at a time. Make at least the minimum payment on all your credit cards each month. But choose one of the cards—for example, the one with the lowest balance or the highest interest—and pay more than the minimum each month. Once you pay that one off, start paying your newly freed-up funds to the next-lowest, and so on.
- Transfer high-interest balances. New credit cards often offer an introductory 0% rate for balance transfers. You should consider taking advantage of such offers if you come across them. But be careful—opening new accounts, in itself, can lower your credit score.
Credit Card Debt and Bankruptcy
There is one more option for managing credit card debt: Filing bankruptcy. As drastic as that approach may sound, bankruptcy can help you reset your finances and get your debt under control. Each year, thousands of Nevadans turn to the bankruptcy process to help eliminate debt and get a fresh start financially.
Individuals can file bankruptcy under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Either of these options can help you manage overwhelming credit card debt (or eliminate it altogether), although they do so in different ways.
Whichever chapter of the Bankruptcy Code you rely on, you get the benefit of the automatic stay. The automatic stay is a court order that forces your creditors (including credit card companies) to temporarily stop all collection activities. That means they can’t:
- Contact you to try to collect the debt;
- Foreclose on your home or repossess your vehicle;
- File a lawsuit against you; or
- Garnish your wages.
On its own, the automatic stay can help give you the time you need to begin taking control of your finances. But it’s not the only benefit bankruptcy offers.
Another bankruptcy benefit is the discharge. At the end of a bankruptcy case, any remaining unsecured debts are discharged—meaning that your creditors can no longer enforce them against you. In effect, those debts are eliminated. Like the automatic stay, the discharge is available under both Chapter 7 and Chapter 13, although you’ll get it sooner under Chapter 7.
Learn More About How Bankruptcy Can Help You with Your Credit Card Debt
Given the high levels of credit card debt among Nevadans, it’s critical that all residents in the state understand how credit cards affect their financial well-being, how to pay down existing balances, and how bankruptcy offers a fresh start financially. That knowledge can help you strengthen your finances whether you’re considering applying for your first card or trying to figure out how to pay off your last one.
If you’re struggling with credit card debt in Nevada and are interested in learning more about how bankruptcy can help you overcome it, contact the Las Vegas bankruptcy lawyers of Haines & Krieger for a free consultation. Our experienced attorneys will help you understand your options and choose the one that’s best for you.