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Knoxville Bankruptcy Law Blog

Many consumers unaware of their own credit card debt

Many Tennessee consumers use their credit cards to pay for daily purchases, including everything from groceries to gas to clothes. Because people use these cards so often, it is easy to see how a person's debt could accumulate quickly, perhaps at a rate that surprised the consumer. Studies have found that a significant number of consumers are actually unaware of how much credit card debt they have. 

For some, not only are they unaware of how much debt they owe, they have no idea the debt exists in the first place. Statistics indicate that Americans now have over $1 trillion in credit card debt, and many of the people who carry this debt are not even sure of how much interest they pay. Around 24% of the people who owe credit card debt have around $10,000. These are only a few statistics that underline the serious nature of America's credit card debt problem.

How much debt is too much?

Debt is often crippling for Tennessee families. According to a recent report, on average, Tennesseans have more debt than they earn. That is, residents of the Volunteer State make roughly $52,400 per year while owing 108% of their incomes to debt. 

As you likely know, debt is often part of life. Unless you have limitless wealth, you probably need to take on some debt for attending school, paying medical expenses or living in your home. Still, too much debt may complicate your financial future. How much debt is too much, though? 

Many college students already have credit card debt

Tennessee college students often struggle with finances, with many of them juggling full class loads and part-time jobs. Because money is tight for students, many of them rely on credit cards for daily purchases. This is trend that is becoming a serious issue as many of these college students end up graduating with a significant amount of credit card debt.

In addition to the credit card debt that many college students graduate with, many of these same students are also graduating with student loan debt as well. Before they have even entered the workforce and started to gain a financial footing, some of these students are already behind, carrying a debt burden they cannot manage on their own. According to statistics, around 36% of college students have at least $1,000 in credit card debt.

Steps to avoiding serious medical debt

A medical emergency can upend a person's financial stability in a matter of a few days or weeks. One unexpected hospital stay or accident can lead to medical bills that can quickly outpace a Tennessee consumer's ability to keep up, resulting in overwhelming amounts of medical debt. This type of debt is one of the leading sources of financial hardship and bankruptcy filings across the country. 

Medical bills can be a problem even for people who have adequate medical coverage. One reason for this is because people are often unclear about which care providers are in network and what their insurance plan actually covers. One way to avoid surprise bills and overwhelming debt is to be clear on the exact terms of the insurance policy. Around 45% of Americans state they believe that one medical emergency would be enough to seriously compromise their financial well-being.

Pending legislation could reduce medical debt

Medical care is expensive, even for Tennessee readers who have health insurance. Some things are not covered, and people may still have to pay if they see a practitioner who is not in their network. Understanding what is covered is a complex, confusing process, and many patients often find themselves with surprise medical bills because of it. Medical debt is a serious problem for many thousands of Americans. 

One example of surprise medical bills comes from a woman who went for an appendectomy at a hospital in network. After her surgery, she still faced expensive medical costs because while the hospital was in network, the doctor was not. Many other have similar experiences, and it is leading to a debt crisis. Congress may actually move to do something about it. 

The grave consequences of significant medical debt

Health care is expensive, even for individuals with insurance. For some in Tennessee, just one unexpected medical event can lead to a barrage of bills that a person can never hope pay. Many Americans struggle with medical debt, and it is one of the leading causes of financial stress. The Consumer Financial Protections Bureau estimates that approximately 72 million people have medical debt.

Mounting medical bills can be very stressful. A few missed payments can result in notices and past-due statements, and eventually, the account may be handed over to a debt collection company. A person who is already suffering from medical problems now has to deal with phones calls from creditors and other collection efforts.

How to start rebuilding credit during bankruptcy

Many people living in Tennessee suffer from some form of debt. In fact, one recent report indicated that nearly 70% of the state's population have some amount of medical debt. The state leads the country in medical bankruptcies because so many people are unable to repay the debts on their own. 

You may be hesitant to pursue bankruptcy, but it is often the only way to get finances back on track. It can truly help you in the long run, but in the short-term, it can drastically reduce your credit score. This can make it much harder to get a good loan rate. Fortunately, after the court approves the bankruptcy, you can immediately start taking steps to boost your credit score. 

More people are carrying overwhelming amounts of credit card debt

Most Tennessee consumers have credit cards, and many people use them for daily purchases, including groceries, clothes and much more. For many, their credit card is their option for emergency funding in case of an unexpected situation, such as an injury or other types of expenses they cannot pay for. Because of these reasons and many others, the amount of bad credit card debt in the United States is on the rise.

There are several concerning signs that could indicate a looming financial crisis. First, the rate of charge-off debt, which is the amount that companies have no expectation of ever collecting, has risen by a few percentage points since the beginning of 2019. The amount of balances past due by at least 30 days also increased. 

Stopping contact from creditors and seeking debt relief

One of the most annoying effects of being behind on payments and owing a significant amount of debt is the constant contact from creditors. Phone calls, letters and other means of communication are commonly used as they seek to get payment. Potential changes in the law could affect how creditors operate, and it may compel more Tennessee consumers to take action and seek debt relief faster.

There are laws in place that protect the rights of consumers who owe creditors. These rules limit the actions of creditors and what methods they use to contact debtors. However, some believe that the Consumer Financial Protection Bureau could propose new rules that would change these protections. It's possible that at some point in the future, creditors could text people or email them to collect money.

Does credit card debt point to a future financial crisis?

With a strong economy and low levels of unemployment, consumer confidence is high. This leads to increased spending, which may leave some consumers with a large amount of credit card debt. Rising levels of credit card debt are especially concerning considering that most people in Tennessee received smaller tax refunds or no refunds at all, and wage levels continue to remain stagnant. 

Credit card debt is a common issue for middle class, but statistics indicate this is a growing concern for upper middle class as well. This group of consumers has more expendable income and assets to handle a larger balance, but they often do not pay off this type of debt. The result is more and more American consumers nearing or entering retirement with a significant amount of credit card balances

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