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Credit Card Debt Is Bad for More Than Just Your Finances

Carrying credit card debt isn’t just bad for your budget. It may also affect your health.

The stress of carrying card debt through adulthood is linked to poor health, including joint pain or stiffness that interferes with daily activities, a recent study from the University of Missouri found. Beyond the worries about repaying debt, one reason for poor health may be that people with high debt have little money left to pay for resources that protect their health, the study said.

The findings come at a time of increased financial insecurity for many Americans as a result of the pandemic, though the study noted that the level of unsecured debt, like credit cards, payday loans or medical bills, has been rising more quickly than income over the past several decades.

The new research tapped Department of Labor data to analyze the financial health of almost 7,900 baby boomers over more than a decade, from age 28 to 40, as well as their physical health at age 50. It found that people who carried consistently high levels of unsecured debt were 76 percent more likely to have pain that interfered with their daily life than people with no unsecured debt.

People who carried debt over time reported worse physical health late in life, said Adrianne Frech, a medical sociologist and associate professor at the university’s School of Health Professions who is the study’s lead author.

And the effects lingered even if the debt had been repaid, she said. People who had paid down their debt over time were still 50 percent more likely to have pain that impeded regular activities.

The study builds on earlier research that found that unsecured debt is more burdensome than other kinds of debt because it has higher interest rates and is often borrowed during times of desperation. “Unsecured debt is stressful to repay,” Dr. Frech said.

Poor health and high debt can feed a cycle that’s hard to break, she said. People take on debt and the stress affects their health, which, in turn, may limit their ability to work and pay off the high-interest debt. Simply telling people to manage their money better isn’t enough, Dr. Frech said. “We must address the systemic inequalities that create these desperate circumstances in the first place,” she said.

The study period predates the 2008 financial crisis and the pandemic-induced economic downturn. It didn’t include student debt, which many borrowers are having trouble repaying well into their 30s and 40s.

After growing for years, credit card debt fell in early 2020, as Americans cut back on spending and paid down balances during the pandemic. Delinquent accounts fell because of federal stimulus programs as well as voluntary forbearance offered by banks to struggling borrowers. The average credit card balance was $5,525 earlier this year, down from about $6,500 in 2019, according to the credit bureau Experian.

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Yet while card balances remained $140 billion lower in the middle of this year than at the end of 2019, they began ticking upward in the second quarter of this year, rising $17 billion above the first quarter, according to the New York Federal Reserve.

Some indicators suggest household debt is becoming a concern for some consumers. The share of people rating their debt-to-income ratio “very unhealthy” doubled in the third quarter, to 16 percent from 8 percent, according to the American Consumer Credit Counseling Financial Health Index.

And an online survey by Bankrate.com found that more than a third of people who had card debt before March 2020 saw their balances grow during the pandemic.

Here are some questions and answers about managing credit card debt:

What is the best way to pay down credit card balances?
Because credit cards typically charge double-digit interest rates, most financial advisers agree that you’ll save the most money if you focus on paying down the card with the highest interest rate first. “I prefer the avalanche method,” said Benjamin Jacobs, a fee-only financial planner in Athens, Ga., using a common name for this approach.

Here’s how it works: Make the minimum payment on all of your cards to avoid late fees, but put any extra money you have toward the highest-interest balance. When that balance is paid off, move on to the next card, and so on.

But some people may be more motivated by paying off the card with the smallest balance, regardless of its interest rate. The mechanics of this approach, sometimes called the “snowball” method, are the same: Pay the minimum on all cards, but put extra cash to the smallest balance until it’s gone, then move to the next card. “I like the snowball, because you have instant success,” said Melinda Opperman, president of Credit.org, a nonprofit financial counseling agency in Riverside, Calif.

If you feel overwhelmed and are falling behind on payments, you may consider seeking help from a nonprofit credit counseling agency. Those agencies can help assess your situation and negotiate a plan with your card companies to allow you to pay off balances over time — typically, two to five years. The National Foundation for Credit Counseling can help get you started.

How can I avoid overspending during the holidays?
Shoppers expect to spend almost $1,000 this season on gifts, food, decorations and other holiday-related purchases, according to the National Retail Federation’s 2021 forecast.

But Ms. Opperman said many clients have told her they are still paying off credit card bills from last year. She suggests focusing on enjoying time spent with loved ones during the holiday season rather than buying pricey gifts. She said she asks clients: “Do you remember what gift your sister or brother bought you last year?” Often, she said, they don’t recall. But they do remember playing a fun game or sharing a meal. “It’s more about the memories of the time spent with family and friends.”

Mr. Jacobs recommends breaking out the credit card only for items you know you can pay off within a month. “If you don’t have money up front for it, you shouldn’t be buying it,” he said.

He also suggested starting to build an emergency fund, if possible, of three to six months of living expenses. That way, you’ll be less likely to rely on high-interest card debt if you have an unexpected bill.

As for the holidays, a basic step to avoid overspending is to make a plan before shopping for how much you will spend, said Abigail Sussman, an associate professor of marketing at the University of Chicago Booth School of Business who studies how consumers make decisions. “Setting a low spending goal can be helpful,” she said.

She also noted that many digital shopping options, like saving your credit card on a retailer’s website, make it so easy to make a purchase that “it feels like it’s free.” So you could remove your card from the site, she said, forcing you to take the extra step of having to enter your credit card information each time you make a purchase: “Make it harder to spend.”

Should I put medical bills on my credit card?
It’s best to talk with your medical provider first, advisers say. Many hospitals have low-interest or interest-free payment options for strapped patients, and some will take less than the full bill if you offer to make a partial payment immediately, Mr. Jacobs said. Putting the bill on your credit card means you’ll pay double-digit interest charges. And if you fall behind on payments and the debt is sent to a collection agency, that will probably hurt your credit score.

 

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