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Managing and paying off debt

Tips on changing your spending habits and being more intentional about money

Americans like to spend money. Most of us have an average of four credit cards in our wallets.1 Many of us use them to pay for things we don’t really need but think we should have.

American humorist, actor, and author Will Rogers famously said, “Too many people spend money they earned… to buy things they don’t want… to impress people that they don’t like.” And oftentimes people don’t even have the money for these things. Instead they rack up their credit card debt, accumulating a lot of interest along the way.

During the height of the pandemic, Americans reevaluated their relationship with money and all that it buys, and they suddenly became experts at saving money. Due to reduced spending during lockdown and the influx of government stimulus checks, Americans accumulated $2.1 trillion in excess savings.2

They (re)discovered the comforts of home and how there is a feeling of contentment in simplicity. Credit card debt went on the decline, with card balances going from $850 billion in early 2020 to less than $750 billion in the spring of 2021.3

Then, in late 2022, credit card debt increased by $86 billion, the largest-ever recorded increase. Recently, the nation’s credit card balance passed $1 trillion, with interest rates for a new card at a whopping 24 percent.3 Plus, the excess savings now amounts to $900 billion, about half of what it once was.2

So it looks like Americans’ love affair with their credit cards — and spending down their savings — is back on track. And inflation has taken a front row seat. So, it’s not a surprise that people are needing to put everyday purchases like groceries on their credit cards. Credit cards are working overtime.

Managing/Paying Off Your Debt

Being in debt is stressful. Getting out of debt is empowering. When you take control of your finances, you feel more in control of your life. To change your spending habits — for the good — be intentional about how you spend your money. Here are some tips to get you started:

  • Learn how to budget (and stick to it). Having a budget is key to managing your money. You want to be sure you have enough money for monthly expenses as well as your savings account and investment portfolio.
  • Track your expenses. Knowing how much money you spend and on what is key to understanding how you can better manage your money. There are a plethora of apps to help you.4
  • Prioritize debts. It’s likely you have accumulated debt in multiple buckets. So figure out where you want to focus your attention and what strategies you want to use in paying them off. The debt avalanche strategy encourages putting extra cash toward the payment of debts with the highest interest rates first, and then paying the minimum payment of the debt with the lower interest rate. The debt snowball strategy has you focus on tackling the smallest debts first. This can give you a feeling of accomplishment and motivate you to keep going.5
  • Create emergency and retirement funds. Having an emergency fund will help offset any unexpected expenses that can contribute to your debt. So aim to have at least a month’s worth of income saved. Using your 401(k) funds to pay down your credit is another option. If that’s what you decide and you’re under the age of 59 ½, expect to pay income tax and a 10% penalty. You might be able to avoid the fees if you qualify for a hardship withdrawal, due to certain medical expenses, educational costs, home repairs after a natural disaster, and other circumstances.5
  • Pay on time. Autopay takes the chance that you might forget to make a payment out of the equation. You can set it to pay your minimum payment or total statement balance each month. Or get a reminder via text or email. If you make a late payment, you can expect to pay a late fee, have a penalty APR, and ding your credit score. Your credit score can be seriously affected by a late or missed payment. According to FICO, a credit score of 607 will drop to 570–590 for a 30-day missed payment and to 560–580 for a 90-day missed payment. And someone with a 793 credit score who misses a payment by 30 days will see their credit score drop to 710–730 and by 90 days to 660–680.6
  • Pay more than the minimum. If you pay just the minimum, your interest charges will increase. So much so that card issuers are required to include a minimum payment warning on each monthly statement.7
  • Review your credit report. Your credit report is a culmination of your credit history, loans, and other financial information. It’s used to create your credit score. To have a good credit score, be sure to pay your bills on time, be careful of getting too close to your credit limit, and check for errors in your report. You can locate your score on a credit or loan statement, speak with a credit or housing counselor, or buy your score from a reputable credit reporting agency.8  
  • Avoid a debt trap. Don’t take on multiple lines of credit, if you can help it. And don’t let your debt obligations surpass your capacity to repay your loans. If that happens, late payment penalties add up and you might need to take out another loan to repay a previous one. If that happens, you are sure to feel majorly stressed.9
  • Qualify for lower interest rates. Personal loans are known for having lower interest rates (9.09% on average) than credit cards (16.44% on average). So you might want to use a personal loan to help with paying off your credit card. Be sure to do what you can to boost your credit score to lock in the best loan rate.10

Once you pay off your debt, save and budget responsibly rather than relying on your credit cards to make ends meet. That way you’ll avoid the stress that comes with managing your debt.

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This is a general communication for informational and educational purposes. The information is not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. If you are seeking investment advice or recommendations, please contact your financial professional.

1. White, Alexandria. “Americans have an average of four credit cards — is that too many?” May 10, 2022, 

2. Pettypiece, Shannon. “Shrinking savings and rising debt leave consumers on shaky financial footing,” March 18, 2023, 

3. De Visé, Daniel. “Americans owe $1 trillion in credit card debt,” May 30, 2023,

4. Gravier, Elizabeth. “The 5 best expense tracker apps of 2023,” April 21, 2023, 

5. Kerr, Emma. “14 easy ways to pay off debt,” May 9, 2023,

6. White, Alexandria. “What happens when you miss a credit card payment?” March 30, 2023, 

7. White, Alexandria. “Here’s what happens if you only pay the minimum on your credit card,” May 9, 2023, 

8. “Understand, get, and improve your credit score,” June 1, 2023, 

9. Jalan, Gaurav. “How to avoid a debt trap?” August 4, 2022, 

10. Suknanan, Jasmin. “How to qualify for some of the lowest interest rates on a personal loan,” May 31, 2023, 

DOFU 6-2023