Facts About Personal Finance and Debt
Written: zaddy | February 9, 2023
Personal finance is a touchy subject. No one wants to talk about money or debt, and yet it’s so important. If you are in debt, debt can be an obstacle that prevents you from reaching your goals. On the flip side, having a good credit score can open up opportunities for you to gain access to credit and financial products that can help you achieve your goals.
But how do we begin to talk about money and debt? We’ve created this post as a starting point—a forward-looking guide that will get you thinking about personal finance and debt in a way that empowers you. Here are some interesting facts about personal finance and debt you might not have known. Let’s dig into them!
There may be a faster way to pay down credit card debt
If you are looking to pay down credit card debt quickly, loan consolidation could be a great option. With loan consolidation, a single monthly payment is made on credit card debt, which can make it easier to prioritize payments and reduce unnecessary spending. Additionally, savings on interest can be had by saving money for the loan instead of using credit cards. It is important to not buy something that can’t be paid off with cash when paying debt, as this could lead to debt explosion and debt-induced financial stress.
The Average Person Spends 12-18% More When Using Credit Cards
On average, people spend 12-18% more when using credit cards than when paying with cash. For example, one analysis of credit card spending found that on average credit card users spend 12% more in credit card purchases than those who use debit cards. A study of credit card debt found that 30% of American adults’ income is used to pay off debt (not including mortgages). 8% of parents have reported an increase in financial well-being from the previous year.
It’s estimated that 40% of Americans earning under $50,000 have below-average credit scores. This indicates they may be at risk for high interest rate credit card debt or other financial woes.
According to research, credit scores tend to rise with income, as well as the average number of credit cards and the likelihood of using other financial products.
33% Of College Students Have Made a Late Payment on a Credit Card
A recent study by Northwestern Mutual found that 29% of Americans reported delaying significant purchases due to debt. The study also found that 30% of American adults’ income goes towards paying off debt, excluding mortgages. Of this debt, 19% comes from credit card debt.
In addition, the Northwestern Mutual report found that 33% of borrowers are expected to default on student loans by 2023. Of these borrowers, 33% have made a late payment on a credit card. Taken together, these statistics show that there is an increasing awareness of the burdensome financial situation many young people find themselves in as they graduate college and try to establish financial independence. However, despite this knowledge, many still struggle with their debt burden, suggesting that more needs to be done to ensure that students have access to education and financial support when they need it most.
A separate study by the U.S. Department of Education found that nearly 40% of borrowers are expected to default on student loans by 2023. Of these borrowers, 33% have made a late payment on a credit card. Taken together, these statistics illustrate the importance of providing young people with access to financial literacy training and guidance throughout their college years to help them avoid debt and develop the financial habits and skills necessary for future success.
Do You Know What Interest Rate You’re Paying?
On average, 30% of American adults’ income goes towards paying off debt (excluding mortgages). The average debt for American adults is $23,325 (excluding mortgages).
Before you take out loans, check your mortgage valuation or use a calculator. Using one of these tools can help you understand how much you can afford to borrow and what interest rate would be applicable. This will help you make an informed decision about whether to go for a loan or not.
Make sure you know the interest rate of your loan and the terms of repayment before taking out a loan. This will help you plan your finances better and avoid any financial surprises in the future.
It’s normal to have debt. It’s what you do with it that matters
It is normal to have debt. It’s what you do with it that matters. Ignoring debt or not having a plan to pay it off is not a wise decision. In the U.S., total household debt amounting to trillions of dollars, debt can be beneficial if it’s put into a high-interest savings account. But you must assess your monthly income and expenses first before deciding on debt repayment plans.
– Besides, paying off debt as soon as possible is vital for financial goals like buying a house or starting a business. So why not start today by assessing your current financial situation and developing a plan to tackle debt?
Paying the Minimum Required Balance Will Get You Nowhere
If you’re struggling with debt, you’ve likely heard the advice to pay the minimum required balance on your debt every month. But making only the minimum payments on debts can add up to hundreds of dollars in interest. This is because interest rates vary widely from loan to loan, and credit card balances have high interest rates, too.
Making more than the minimum payment can also save money on interest. To budget effectively, it’s essential to track expenses and regularly evaluate debt liability and personal finance goals. This helps you stay on track and prioritize debt repayment as needed.
Debt consolidation can be a beneficial option for managing multiple debts at once. If you’re paying credit card debt, for example, debt consolidation could help you pay down credit card balances faster and save money on interest charges.
Personal loans can help with expenses and savings
Personal loans can be a great choice for covering expenses and savings. Personal loans are often used as a convenient way to finance large-ticket items, such as home renovations or a special vacation. They make it easier to afford these expenses by providing access to money when you need it.
Another advantage of personal loans is that they can help borrowers build credit scores, which can lead to favorable personal loans rates in the future. Sending personal financial information to banks when applying for personal loans may help them assess your creditworthiness. This can help you save money on interest over time and make financial decisions with more confidence.
An emergency fund is a vital financial tool that helps protect your lifestyle from unexpected expenses and financial emergencies such as job loss. Establishing an emergency fund helps ensure you have enough money to cover any unforeseen costs, whether they’re minor or major.
By exploring budgeting tools and personal loan options, you can decide if personal loans are right for your financial goals and needs.
Stocks Provide a 10% Rate of Return Over Time
It’s no secret that investing in the stock market can be a risky proposition. But investing in stocks has historically provided a 10% rate of return over time. This is why it’s important to carefully analyze your financial goals and budget before investing in the stock market. The Rule of 72 can help estimate how long it will take to double an initial investment. High-interest savings accounts from banks offer a better rate than traditional savings, and can help you save money for a rainy day. Additionally, personal finance experts recommend budgeting and tracking your expenses and income to ensure you’re staying on track with your financial goals. Investing in stocks can be a fun and lucrative hobby, but it requires careful analysis and planning to ensure you make the most out of your investments.
Track Your Credit Score to Make Sure It’s Good
A good credit score is typically above 700. This means that you have a good credit history and have been responsible with your debt and credit card debt in particular.
Therefore, checking your credit score once a year does not have a negative effect on your score. It’s important to monitor your credit score regularly to make sure it is accurate and up-to-date. When checking your credit score, only consider loans and credit cards that are necessary for you to get the money you need. Also, be aware of how many third parties are checking your credit score, as too many can negatively affect it. Finally, make sure to always pay your debt and credit card bills on time to maintain a good credit score.
A good credit score will help you access affordable financial products and services, making finance more accessible to everyone.
Wealth Doesn’t Equate a Huge Salary
– Wealth can be accumulated without a large salary, as proven by living below one’s means and saving money. Owning a home can be another reliable way to increase one’s wealth without relying on a high salary. Investing in stocks, bonds and other financial securities can help build wealth regardless of salary.
– Having a retirement plan that is linked to investments can also help build wealth, regardless of income. Taking advantage of tax credits, deductions and other incentives can add to one’s wealth no matter what one earns. Thus, it is important for each individual to establish goals for financial well-being and develop a personal finance plan accordingly.
Debt Isn’t Inherently Bad
Debt isn’t inherently bad. It can be a useful financial tool to gain leverage and build credit, but it can also lead to excessive debt and snowballing interest. In fact, personal debt is widely considered a financial health risk, as it can prevent you from saving money or investing for the future.
That’s why personal finance experts encourage consumers to take control of their debt by budgeting and managing their money wisely. Through careful budgeting and smart money management, consumers can avoid debt and still live the life they want, without the worry of debt.
Frequently Asked Questions
What is a scary fact about personal finance?
A scary fact about personal finance is that more than half of the US population lives paycheck to paycheck. This means that they have no financial cushion when unexpected expenses arise and can quickly fall into debt. To make matters worse, nearly 80% of Americans report experiencing financial stress in their everyday lives.
When it comes to debt, over 81% of U.S. adults are in debt with credit card debt making up the largest portion of debt owed by Americans. Shockingly, nearly 70% of Americans only have less than $1,000 saved for a rainy day or emergency fund. To make matters worse, more than half of Americans are living beyond their means, meaning that they are spending more money than they earn each month.
Why should I invest in mutual funds instead of individual stocks and bonds?
Mutual funds are a great investment option that provides plenty of advantages over investing in individual stocks and bonds. Here’s why:
1. Diversification – Mutual funds provide the investor with diversification and can help reduce risk. By investing in a mutual fund, you are able to spread your investments across different asset classes and industries, meaning you don’t have to rely on one company or sector for performance.
2. Professional Management – Mutual funds are managed by professionals who understand the market and its various intricacies. As such, investing in mutual funds requires less research and understanding compared to investing in individual stocks and bonds. This makes it easier for you to make informed decisions without having to worry about making mistakes when investing in individual assets.
3. Liquidity – Mutual funds are more liquid than individual stocks and bonds and can be bought and sold more quickly. This makes them great for investors who want to be able to cash out their investments quickly should they need to.
4. Low Fees – The fees associated with mutual funds are typically lower than those associated with individual stocks and bonds. This means that you can get more value for your money when investing in mutual funds as opposed to investing in individual assets.
5. Access To A Variety Of Asset Classes
What are the best ways to save money?
Saving money can be difficult, especially in today’s world where it seems like everything is just getting more and more expensive. But there are a few tried-and-true ways that people have found successful when trying to save money. Here are a few of our best tips:
1. Establish an Emergency Fund – An emergency fund is essential for financial security and stability. Make sure you set aside money each month to make sure you have something saved up in case of unexpected costs or financial emergencies.
2. Start Small – If budgeting feels overwhelming at first, start small by setting aside just $1 a day. At the end of the year, you’ll have saved up over $365!
3. Reduce Credit Card Debt and Other Loans – High interest debt can quickly add up, so it’s important to pay off credit card debt as soon as possible. Focus on loan repayment by budgeting and allocating some of your income towards debt repayment each month.
4. Avoid Take-Out Food Seven Days a Week – Eating out too often can be expensive, so if you want to save some money, try to scale back on the number of times you eat out each week. Even if it’s just
Debt is not inherently bad. It’s a financial tool that allows people and businesses to finance operations or get access to credit for more purchasing power. In fact, debt has helped many individuals and businesses grow and prosper in modern economies. Having debt isn’t necessarily a bad thing as long as you can pay it off with interest over time. The key is to be aware of the debt you have, how much credit card debt you can handle, and how interest rates work. Being informed about personal finance will help you make better personal finance decisions in the long-run!