Credit cards, by design, have a tremendous amount to offer. They’re a great tool for building credit and a safety net in case we encounter unexpected expenses.
Once we have them, we’re encouraged to use credit cards as much as possible to reap the benefits of things like cash back, free flights and other rewards.
But for many of us, these benefits come at a cost.
We’re accumulating debt faster than we can pay it off. Here’s how bad it’s gotten:
- Americans collectively have $1 trillion in credit card and other revolving debt.
- Nearly 25 percent of adults in the United States have more credit card debt than cash in the bank.
- That’s more than $15,000 per household with credit card debt.
- Americans paid more than $100 billion last year in credit card interest and fees.
- Each U.S. household pays about $900 in interest on credit cards every year.
Those numbers are discouraging. But what’s worse is the amount of stress and anxiety credit card debt can cause.
Tally conducted a survey of more than 1,400 Americans to learn more about the psychology behind credit card debt, and the results were staggering: Half of those surveyed, regardless of the state of their finances, said they experience some form of anxiety over their credit cards.
Let’s be honest: Credit card companies make money when we pay interest or miss a payment and are charged a fee. Many of us rely on our cards for everyday expenses and unexpected costs, and credit card companies aren’t incentivized to help us understand the actual cost of our credit card debt.
To get out from under the burden of credit card debt, consumers often turn to existing solutions like personal loans, balance transfers and calculators.
Personal loans provide a quick fix. You get a lump sum of cash — hopefully at a lower interest rate — to pay down your credit card debt. Then, you have a fixed monthly payment for a fixed amount of time, typically around three years.
Sounds easy, right? Get a loan and pay off your cards. Then, you have just one due date and payment each month.
The problem? Many consumers don’t stop using their credit cards — nor should they, necessarily. They end up with multiple payments and debts to manage monthly after all. The stress and anxiety returns.
Balance transfers aren’t much different. A balance transfer lets you move some or all of your credit card balances to a new card, typically taking advantage of a temporary promotional 0 percent APR on the transferred balance for around 12 to 18 months.
In other words, if you pay down your balance before that promotional period is up, you avoid paying interest on it. You typically pay a fee to transfer your balances. But this strategy, if not executed seamlessly, will land more money in the pockets of banks at the expense of consumers.
Tally conducted a study that found 69 percent of people who transferred balances or consolidated debt are in the same or worse position than they were three years ago.
Calculators add to the confusion. Each one has its own method for helping you determine how to best pay down your credit card debt.
Some may tout the debt snowball method, which suggests paying down your lowest balance debt first to get the ball rolling and motivate you to continue. Others encourage the debt avalanche method, which prioritizes your credit cards with the highest APRs and attempts to reduce your interest costs.
The fundamental problem with all of these calculators is that they don’t take into account your spending. In fact, they assume that you stop altogether. That’s impractical for many people.
Many of us rely on our cards for everyday expenses and unexpected costs, and credit card companies aren’t incentivized to help us understand the actual cost of our credit card debt.
At Tally, we’ve created a new approach to credit card debt management. We launched last year with the goal of removing the complexity of credit card debt management.
We did this by first creating a simple, elegant app for managing all of your credit cards in one place and extending qualified users a revolving line of credit to save them money with a lower interest rate.
Next, we helped our users save money with late fee protection. Tally makes your minimum credit card payments for you if we don’t detect a payment from you. This was another way for us to help reduce the anxiety associated with managing money.
Now, we’re helping our users get out of debt faster and smarter with our newest feature: Tally Advisor.
Tally Advisor provides a more realistic and adaptable approach to debt repayment. It’s especially helpful for consumers who may otherwise choose a personal loan or balance transfer for credit card debt consolidation.
Think of Tally Advisor like a robo-advisor for your debt, without the cost of a traditional financial advisor. A robo-advisor usually asks when you want to retire, but Tally Advisor asks when you want to be out of debt. Basically, it crunches the numbers so you don’t have to become a math whiz or spreadsheet genius.
Tally Advisor is not a set-it-and-forget-it solution. It thrives on your active, though minimal, participation in your debt management. Each month, you’ll get a new recommendation and can set a new payment goal depending on how you’d like to contribute to your debt repayment.
Tally Advisor gives you a new, smarter payment recommendation each month based on your balances, spending and timeline to become debt-free. It adapts to your behavior, so if you spend more the next month, you’ll see the immediate impact on your timeline.
Most debt repayment calculators assume you’re going to stop using your credit cards entirely. We know that’s not realistic, so we take it into account. Tally Advisor is smarter than a calculator because it has insight into your data and is constantly adjusting based on your spending.
You can’t overcome your credit card debt if you ignore your spending habits. That’s why your recommendation from Tally Advisor is based on your prior month’s spending, plus 3 percent of your balances, to ensure your overall debt is decreasing every month.
Plus, you can see in real time how an extra $50 toward your debt could impact your time to repay.
If you continue to use your credit cards while only making the minimum payment, your debt will grow. So, we encourage you to get as close as possible to Tally Advisor’s monthly payment recommendation. And if you’re able to pay more than the recommendation, Tally always allocates any additional payments to your highest interest balances to maximize your savings.
Our goal at Tally is to get you out of debt as fast as possible. To learn more about Tally Advisor, download the app and see how we can help you become debt-free.