South Florida financial expert offers solutions to those with maxed-out credit cards
MIAMI — Nearly one-fifth of credit card borrowers were using at least 90% of their available credit in the first quarter of 2024, according to the New York Fed's Center for Microeconomic Data.
"Unfortunately, this is my case and honestly, it's all for surviving," Valeria Gomez told CBS News Miami's Ivan Taylor.
She is almost maxed out on her credit card, and although she waited until her mid-20s to get one, now she faces a burden.
"About 90% of it is used up," Gomez said. "Miami specifically, in the last four or five years — pre-pandemic — everything skyrocketed."
"And the math says, 'if you pay the minimum, if you don't touch that principal amount that you're owing in three years that principal amount doubles,'" said Professor Deanne Butchey from the Finance Department at Florida International University.
According to a Bankrate calculator, people with a card balance of $5,000, at an interest rate of 21.6%, paying $100 a month will spend more than 10 years paying it off, they will spend $7,906 in interest, on top of the $5,000 in principal.
Butchey had advice for Gomez and people like her: "She should go to her banker, her credit card company please increase my credit card limit because if you are using more than 30% of debt in any single credit card there's an immediate ding to your credit card score."
Taylor asked Gomez: "What do you respond to people who may see you're young, you want to go out and you're not budgeting yourself?"
Gomez responded saying: "That's inaccurate. I had to use my credit card for groceries, for gas, for basic needs that I have in life."
Butchey says there is an additional ingredient affecting people in general: "I firmly believe social media has a lot to be blamed for."
Butchey says people of any age are feeling pressured to follow the actions of others on social media without thinking of the cost.
Eliezer Arcia, also in his 20s, says last January he called his credit card company to put an end to the nightmare.
"I'm going to stop using my credit card," Arcia said and did.
He says he now only uses his ATM card to avoid getting into debt. He told us he felt he was getting close to maxing out his limit of 2,000 dollars, and his credit card bank extended his limit of $1,000 more.
"But, I caught myself spending a little bit more of what I tried to spend on a monthly basis," said Arcia.
Butchey says canceling credit cards is not a wise decision, because it affects the person's credit score and when they need to make a bigger purchase they will not have the credit for it.
"We have to create a budget and live within our means," said Butchey who also has advice for consumers of all ages.
"When shopping with your credit card ask yourself: 'Do I want it or do I need it?'"
She says that helps get out of the financial burden.