Executives at major banks have been touting the financial health of the American consumer. But the good times can’t last forever, and many of us are carrying high-interest credit card balances. Here’s what you can do if this pertains to you.
America’s biggest banks announced their third-quarter earnings last week. The results were very positive, and there are several key take-aways for consumers.
First, let’s hear directly from the executives:
“While global growth is slowing, the U.S. consumer remains healthy … The U.S. consumer is incredibly strong. Consumer spending is strong. Sentiment is strong, so the consumer credit is good.” – Jennifer Piepszak, CFO, Chase
“The U.S. consumer continues to benefit by strong employment prospects … Across nearly every line of business, we are seeing strong customer activity.” – Brian Moynihan, chairman of the board and CEO, Bank of America
“The consumer business showed continued momentum in the third quarter.” – Mark Mason, CFO, Citi
“We had strong underlying business fundamentals, including growth in loans and deposits, increased customer activity, strong credit performance and higher capital returns.” – John Shrewsberry, senior executive vice president and CFO, Wells Fargo
See related: Card balances dipped in August, Fed reports
‘Healthy,’ ‘strong,’ ‘good,’ ‘momentum’
These are all great words to hear! There have, of course, been recent rumblings of a looming recession. Some of that is rooted in fundamentals (the inverted yield curve, weak reports on manufacturing and service sector activity, etc.), and some of it is because we’re more than 10 years into an economic expansion. The good times can’t last forever.
Still, as the aforementioned bank executives noted, the typical American household’s finances are in good shape, thanks in large part to a robust employment market.
That brings me to my advice. Yes, Americans are generally doing well financially. But there are still significant pockets of instability. It troubles me that 28 percent of Americans have no emergency savings at all, and just 18 percent have enough savings to cover six months’ expenses, according to our sister site Bankrate.com.
On a likely related note, about 6 in 10 credit cardholders carry a balance from month to month, the American Bankers Association reports. Because if you don’t have enough savings, what’s going to happen when your car breaks down, your home needs an unexpected repair or you get sick?
Those charges are going to go on a credit card, and that’s very expensive debt. The average credit card charges 17.37 percent.
It really worries me that so many people are in credit card debt when the economy has been this strong for this long. The Federal Reserve found the average household with credit card debt owes $5,700, and the median is $2,300. You can’t consider yourself financially secure if you have this much high-cost debt.
If you have card debt, consider a balance transfer
My best advice for anyone in credit card debt is to sign up for a 0 percent APR balance transfer card ASAP. There’s always urgency to get out of credit card debt, given how high these interest rates are. You should feel an added sense of urgency now because the best balance transfer offers could soon get trimmed back.
Another key theme during the bank earnings calls was that the two recent Fed rate cuts have put pressure on their net interest margins. I fear that banks could respond by shortening balance transfer periods or raising transfer fees.
The longest 0 percent balance transfer currently on the market is the Citi Simplicity® Card (21 months with no interest if you complete the transfer in the first four months after signing up for the card, then 14.74 to 24.74 percent variable after that). There is a 5 percent or $5 minimum upfront transfer fee.
A few cards have 15-month interest-free balance transfer terms without a transfer fee: the Chase Slate card (regular variable APR 16.49 to 25.24 percent), the Amex EveryDay® Credit Card from American Express (regular variable APR 13.99 to 24.99 percent). In both cases, there’s no transfer fee as long as you complete the transfer within 60 days of opening the card.
Depending on how much you owe, these cards could save you hundreds or even thousands of dollars. So get while the getting is good. That applies to the best balance transfer offers as well as other strategies for paying down your debt, like taking on a side hustle.
The unemployment rate is at its lowest point in 50 years. Take advantage of that and use your extra earnings to reduce your credit card debt. Also, look to sell unneeded possessions and cut your expenses.
Every extra dollar you put toward your debt represents a guaranteed return of 17, 20, maybe even 25 percent or more (depending on your interest rate). By following these steps, you’ll put yourself in a much better situation now and in the future.
Editor’s note: Information about the Chase Slate and Amex EveryDay Credit Card has been collected independently by CreditCards.com. The issuer did not provide the details, nor is it responsible for their accuracy.