Amidst rising interest rates and persistent inflation post the COVID-19 pandemic, many Americans have turned to personal loans as a means to manage their debt, as per the latest data from TransUnion.
TransUnion reported that the share of personal loans being used for credit card consolidation surged by approximately 54% in the third quarter of 2022 when compared to levels in the third quarter of 2019. Furthermore, personal loan originations hit a record high of 5.6 million by the fourth quarter of 2022.
Liz Pagel, Senior Vice President and Head of TransUnion’s consumer lending business, stated, “As the Fed has raised interest rates in hopes of curbing inflation, many consumers have turned to unsecured personal loans as a way to consolidate their credit card debt to secure a lower interest rate. After paying off credit card debt and becoming more open to buy on their cards, these consumers not only save on interest over time, but they also see an improvement to their credit scores.”
In fact, individuals who opted for personal loans to consolidate their credit card debt witnessed an average increase of 18 points in their credit scores. Additionally, these consumers also experienced an average 57% reduction in their balances, according to TransUnion.
However, some Americans found it challenging to prevent their debt levels from rebounding after consolidation, with certain individuals seeing their credit card balances return to previous levels 18 months later.
Margaret Poe, Head of Consumer Credit Education at TransUnion, emphasized, “Consolidating credit card debt into an unsecured personal loan can be a viable option to pay off your debt while freeing up funds in your monthly budget. Nevertheless, it’s essential to complement this with changes in spending habits to ensure that the credit card debt doesn’t resurface.”
If you are grappling with high-interest debt, you may contemplate paying it down with a personal loan featuring a lower interest rate, potentially reducing your monthly payments. You can explore various lending options without affecting your credit score by visiting Credible.
A significant portion of Americans, around 35%, find themselves grappling with debt levels at or near the highest they’ve ever managed amidst ongoing economic uncertainties, according to a 2023 survey conducted by Northwestern Mutual. However, contrasting this, 43% of survey respondents reported that their debt is currently at or approaching historic lows.
Christian Mitchell, the Chief Customer Officer at Northwestern Mutual, commented, “While more people feel like they’re making progress, there’s still a substantial number of individuals carrying more debt than ever. Regardless of where one falls on this spectrum, it’s crucial to be proactive and deliberate in managing debt within the framework of a comprehensive long-term financial plan. The boundary between manageable debt and uncontrollable debt can be slippery, so it’s an especially important time to maintain vigilance in planning and spending.”
The severity and type of debt vary significantly among Americans. The survey discovered that credit card debt constituted 28% of non-mortgage debt obligations, more than double that of any other category. Here is how different forms of debt contributed to Americans’ overall non-mortgage financial obligations:
- Car loans: 12%
- Medical debt: 7%
- Personal education loans: 5%
- Educational expenses for children/family members: 3%
Many Americans anticipate years or even a lifetime to clear their debt burden. Approximately 49% of respondents expected it would take up to five years to reduce their debt, while 10% believed it would take their entire lives.
Moreover, recent studies underscore the growing concern of credit card debt among Americans. Credit card balances swelled to $1.03 trillion in the second quarter of 2023, as per the latest Federal Reserve Bank of New York report.
“Compared to other debt categories this quarter, credit card balances saw the most pronounced worsening in performance, following a period of extraordinarily low delinquency rates during the pandemic,” noted The NY Fed in its report.
Furthermore, total household debt reached $17.06 trillion in the second quarter of 2023, reflecting an increase of $16 billion from the previous quarter.
For individuals grappling with a substantial burden of high-interest debt, the option of paying it down through a personal loan, which can potentially lower monthly payments, may be worth considering. You can consult a personal loan expert and obtain answers to your queries by visiting Credible.