Title: You’re Not Alone: Addressing Hidden Credit Card Debt

Alarmingly, one in three Americans keep their credit card debt a secret.[1] Concealing one’s debt often leads to further financial strain. Credit card debt won’t go away on its own so consumers that are facing ever-mounting balances need to face the music and act. It may be scary and uncomfortable, but by putting a plan in place one can summit the proverbial mountain that is rising credit card debt.

Reasons Behind Hiding Your Debt:

Several factors contribute to hiding credit card debt: the ease of acquiring new credit cards, societal pressures to have or maintain a certain lifestyle, and overall embarrassment, just to name a few.

Between television advertisements, internet banner ads, and offers literally arriving at one’s doorstep, consumers are bombarded with opportunities for new lines of credit on a regular basis. The temptation for cash back on purchases, points for travel, automatic upgrades and statuses, it is easy to overlook the typical 18 to 24 percent interest rates, as well as annual fees that might be associated with a particular card. The allure of that high credit limit or the ability to transfer balances and consolidate payments often lead from temptation into action.

Many people may feel societal pressure to maintain a certain lifestyle. External factors like friends and family, or pressures to live up to expectations associated with certain careers should not be discounted. Internal pressures like anxiety or insecurity may be just as much of a factor in one’s spending habits. The advent of social media platforms such as Facebook, Instagram, and TikTok have almost certainly compounded these pressures. All these things cause consumers to overspend and live beyond their means. This is by no means an exhaustive list of causes. This is all to say that a variety of reasons; some internal, some external, some personal, some societal, cause consumers to spend on credit.

For some, hiding credit card debt may provide a temporary reprieve. It is amazing how many consumers adopt “the ostrich” approach to financial problems. Ultimately, burying one’s head in the sand only serves to worsen the problem. Minimum payments do not help; especially when one then charges more on that same card. Eighteen percent interest adds up real quick. Secrecy only serves to intensify the financial strain. Moreover, neglecting to pay off hidden credit card debt can have a negative impact on credit scores, making it harder to secure loans, rent apartments, or obtain favorable interest rates in the future. Our last blog discusses all things credit, which can be read here.

On top of the financial consequences, hiding debt from a loved one can lead to problems within your relationship. According to a recent study, 76% of married couples who have dealt with a partner hiding debt said it harmed their relationship and 10% of married couples said it resulted in divorce.[2]

With the severe financial and relationship consequences of hiding debt, it is important to implement a strategy on not just how to pay off the debt, but how to tell a loved one about it.Addressing Hidden Credit Card Debt:

There are numerous ways one might address their debt, hidden or otherwise. Below are some suggestions that might be used as a starting point.

Create a Budget: The first step in creating a budget is to evaluate your current income and expenses. This helps identify areas where you can reduce spending and allocate more funds toward paying off the debt. A noticeable benefit to creating a budget is that it helps visualize spending habits which can have an immediate impact on what a consumer is spending money on. This can help reduce unnecessary spending. Amazing what all those monthly subscriptions add up to isn’t it? On top of helping pay off debts, budgeting can also help with setting long term goals such as saving for retirement and help prepare for emergencies.[1] Think of creating a budget as creating a personal financial map.

Develop a Repayment Strategy: After creating a budget, devise a strategy for paying off the debts. The two most common approaches to paying down debt are the so called “avalanche” approach and the so called “snowball” approach. The former prioritizes paying off debts with the highest interest rates while the latter prioritizes paying off those with the lowest balances. There are merits to both methods but the effectiveness of either depends on the individual’s circumstances. More information on each of those approaches can be found here.[2]

Seek Personal Support: While it may be challenging, confiding in trusted friends or family members, particularly spouses or significant others, can help alleviate some of the emotional burdens and provide support during these stressful times. Having this support can lead you to be more motivated to pay off the debt as you will not have the fear of the debt being a secret.

Consult Professionals: Financial advisors or credit counseling services can provide a different type of support than family or friends. These professionals can offer tailored guidance help you develop a realistic debt repayment or bankruptcy plan. This combined with support from friends or family will allow for a 360-degree support system creating a great path to a financial restart. Further, counseling of a different persuasion may prove beneficial to consumers who struggle with impulse buying and “retail therapy”.

Bankruptcy: For many “bankruptcy” is a dirty word. It connotes feelings of failure and shame. While the number of bankruptcy filings has trended downward for more or less a decade, in 2022 over 387,000 bankruptcies were filed.[3] With the overwhelming majority of those filings being consumer bankruptcies. Bankruptcy is a last resort and not a decision that should be made lightly. Indeed, filing for bankruptcy is chalked full of its own considerations that are beyond the scope of this article. With all that being said, filing for bankruptcy protection may offer a reset button for struggling consumers.

Conclusion: If you’re struggling with hidden debt, remember that there is a path to financial freedom. It may not be easy or pretty but by acknowledging the issue, seeking support, and taking proactive steps to address credit card debt, you can break free from its grip and regain control of your financial future. If you need assistance with your financial situation, we encourage you to consult with our experienced attorneys who can evaluate your circumstances and provide valuable guidance.