BALTIMORE — For the last three years, federal student loan borrowers have had a pause in payments, until they restarted this month. At the same time, consumers are carrying more credit card debt with record high interest and fees.
“We're at about a 45 percent increase in the number of people that are reaching out for assistance with their debt. And then of those folks, we're seeing a 26 percent increase in the level of unsecured debt that they're carrying,” said Thomas Nitzsche, a financial educator with Money Management International (MMI), a non-profit credit counseling service.
More people with more debt is concerning to Nitzsche, especially now.
“Obviously, this isn't great timing because interest rates are high, inflation is still a problem, and then, of course, student loans have just gone back into repayment this month,” he added.
He urges student loan borrowers to come up with a plan to balance paying off their debts while also making their student loan payments. One method is a debt management plan, offered by MMI and other non-profit credit counseling agencies. The plan consolidates all unsecured debts into one monthly payment with a lower interest rate.
“On average, we're able to reduce the interest rates by about 19 percentage points down from about 26 percent to about 7 percent,” said Nitzsche.
Those higher percentage points are costing consumers billions of dollars -- $105 billion in 2022, a new high, according to the Consumer Financial Protection Bureau.
Dannell Grayson knew she needed help negotiating interest rates with her lenders while consolidating her credit card debt.
“I was in a situation where I had been laid off, I knew my debt was mounting, and I wanted to, as soon as I got a job, I wanted to be able to go into a management program,” said Grayson.
She enrolled in a debt management plan through MMI, which helped her pay off around $18,000 in debt in just over two years.
“It was need versus want. Do I really need it? Or do I just really want it? And I just made that sacrifice. And simultaneously, I was paying off my car, so literally in the same month that I paid off my debt, I paid off my car,” said Grayson.
“What was that like?” asked WMAR-2 News Mallory Sofastaii.
“It was the best feeling ever,” Grayson responded.
Now, she feels she’s in a better position to pay off her student loan debt. “And the payments are greater than they were when I was in debt, but I'm no longer in debt so I can actually tackle those,” she said.
Nitzsche added that student loan borrowers have some additional time to get their financial plans in order.
“Now, fortunately, they have a year to make those accommodations and get back into repayment, get back into good standing, because they won't be reported negatively to the credit bureaus for a full year, he said.
In the meantime, he said consumers should think twice before charging large purchases on credit cards.
“Really think long and hard about whether that is sustainable for you and whether that's what you're willing to pay for that money, because ultimately you're paying multiple times over for whatever it was that you purchased on that card,” Nitzsche said.
Grayson is more thoughtful about her purchases after completing the debt management plan. She knows how easy it is to get in over your head, but she also knows there’s a way out.
“There is a way. It's not completely hopeless. It's not easy, but there is a way to do it,” said Grayson.
A Lending Tree survey found 76 percent of credit card holders who asked for a lower interest rate were successful. The average reduction was around 6 percentage points.
Debt management plans typically have a one-time set-up fee and monthly servicing fee. According to MMI, clients pay, on average, $33 for the set-up fee and $25 a month in service fees. For more information on debt management plans, click here.
For additional information on repaying student loan debt, click here.
