Record Credit Card Debt With Neile Simon

This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Contact them to get out of debt today at ChristianCreditCounselors.org.

Americans have set a new record but there won't be any trophies handed out. We now have the highest credit card debt in history. Hi, I'm Rob West.

Yes, it's sad but true. The Federal Reserve Bank of New York made the announcement earlier this month. Neely Simon breaks down the numbers for us today and then it's onto your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, we're always glad when Neely Simon can join us even though too often it's when there's a potential crisis brewing as is the case now with credit card debt. Neely is a certified credit counselor with Christian Credit Counselors and underwriter of this program and Neely, it's great to have you back with us. Thanks for having me on the show, Rob.

Okay, Neely, let's dive in. What are the numbers? What did the New York Fed reveal about what Americans owe on their plastic? So for the first time, credit card debt has surpassed $1 trillion and is now at $1.03 trillion.

In Q2 alone, it shot up $45 billion or 4.6%. Now compare these numbers to the overall household debt, which spiked by $2.9 trillion since the end of 2019, before the pandemic. The interesting observation here is that household debt, which includes credit card debt, mortgages, student loans and car notes, the fact that the credit card debt is almost one third of the household debt is very concerning when you think about how expensive a car or a home is. People are really drowning in debt because of these higher interest rates and increased cost of living. At Christian Credit Counselors, we are seeing people struggling with credit card debt now more than ever.

I can imagine and those are big numbers. Neely, what does that mean to the average household with credit card debt? So in a recent study, 35% of Americans said they were carrying their highest level of debt ever or coming close to it. Lending Tree statistics revealed that in the second quarter of 2023, the average APR on new credit card offers is about 24.24%. The average for all current credit card accounts is 20.68% and the average for all accounts that accrue interest is 22.16%. Wow, well with the Fed raising interest rates almost a dozen times in the past year, that hasn't helped, has it?

No, it hasn't. And that's because in the last year, interest rates have gone up four and a half to five and a quarter points and continue to grow. The average credit card interest rates are now over 20%. So to put that in perspective, if you're making just minimum payments on an account that has a $6,000 balance, it would take you 17 years to pay off that debt. Credit card companies are actually now required to state on the first page of their monthly statements a minimum payment warning that shows you how long it will take to pay off your debt with no new charges and only making minimum payments. So my advice to your listeners is view your monthly statements. They show a lot of important information that can be eye-opening and really make you think differently about just making the minimum payments or even using the credit cards at all. Well, Nealey, of course, folks who are just making minimum payments need to follow the advice we give on this program. Stop using those cards, get on a budget, live on less than they earn and use the snowball method. But often that's not enough or maybe they have more than roughly $4,000 in credit card debt and they really need further help. That's of course where Christian Credit Counselors comes in. So tell us about CCC.

Sure. So Christian Credit Counselors, we offer a free consultation that consists of a comparison estimate where we're going to outline all the benefits and the fees of the program. There's no commitment and our goal is really to educate people on how we can help and provide them the information so that they can make a wise decision for themselves. We then help that person with their budget by either making suggestions or if they've never set up a budget, we're happy to walk them through it together over the phone. The program that we offer is called a debt management program and it benefits people through our pre-negotiated interests, terms and conditions with the credit card companies.

We lower your payments and the new interest rates will range between 1 and 12 percent APR and will vary per creditor. That's really helpful Neely. Well this is my preferred way for you to get out of credit card debt once and for all and with Christian Credit Counselors you can do it 80 percent faster. Neely, so glad to have you with us. Thanks for stopping by.

Thank you so much. Learn more at christiancreditcounselors.org. That's christiancreditcounselors.org.

We'll be back with much more just around the corner. What's most important to you when it comes to choosing your financial advisor? Someone who's aligned with your biblical values? How about someone who will take the time to explain your options? Certified Kingdom Advisors are professionals who meet high standards in competence and integrity and have been trained to offer biblical financial advice.

To find a Certified Kingdom Advisor in your area, visit faithfi.com and click find a CKA. Have you downloaded the Faithfi app yet? You need to do that today because this is going to make your life easier. Yes, you can manage your money through the in-app envelope feature, but also plan out future goals.

I want to buy a house in five years and I'm on track to do that. Here's also what I like. You can connect with people around the country. It's like social media, but better. Ask a question, get an answer and share what you're learning about money and investing. So why don't you grab your phone right now and download the Faithfi app? You're listening to Faith and Finance, where we talk about how we handle God's resources.

How are you using God's resources? We're talking about it and the lines are open to take your calls and questions. 800-525-7000 is the number to call. Let's begin today in Aurora, Illinois. Hi, Jeremy.

Go ahead, sir. I found out from my work that they don't have any retirement and I guess I don't have a 401k set up yet. I talked to them. They do not. They have no matching. So I was just wondering if I should set up with them or if I should set up like a Roth somewhere else.

Yeah, absolutely, Jeremy. So they have a retirement account, but they don't offer matching or they don't even offer a retirement account. I have to set up a 401k, which I thought it was already set up, but it's not. So I would have to set that up and they do not match at all. But if you go through the process of enrolling in the 401k, you do have one available.

You're just not going to get any matching, correct? Correct. So I don't know if I should just do that or if there's something better out there like a Roth.

It's a great question. So normally we would say start with the 401k, max out the matching portion, then flip to the Roth. In your case, because they're not matching, there's really not any compelling benefit to contribute to the 401k apart from there's a much higher annual contribution limit. So in your 401k, you can put in for 2023, $22,500. As a person under the age of 50 in a Roth, you can only put in $6,500.

So if you're just getting started, that may be all you can do. But if you had the ability to do more than $6,500, that's where the 401k, even without matching, is going to be helpful. So I'd open that Roth. I'd fully fund that $6,500 between now and the end of the year. And if you can get more going into the 401k, well, that's great. Because I think your goal should be 10 to 15% of your pay going into retirement accounts, regardless of whether that's the Roth or the 401k.

It doesn't matter how you break it up. The goal is just 10 to 15% going in. Now, you may not be able to do that right now, and that's fine. That would give you a goal to work up to that. But at least you would be headed in that direction. Does that all make sense? Yeah, it does. I was looking into trying to do like 10% every paycheck or whatever that turned out to be.

Okay, very good. Yeah, so if that's really the goal, then what you want to do is have that come right out of your paycheck to set up an automatic transfer to the Roth. Again, that's probably going to oversubscribe. Maybe not this year, but once you hit the max for the year on the Roth, well, at that point, you want to look to flip over to the 401k. You're going to want to find a balance as you project out what you can do per month, especially heading into next year.

Tell your HR department how much you want coming out of your check going into the 401k so that you fully fund the Roth and then get the balance going into the 401k every month. Perfect. Thank you so much. All right, Jeremy, we appreciate your call today.

800-525-7000 is the number to call. We do have some lines open today, so whatever you're thinking about financially, we'd love to tackle it with you. Whether it's your spending plan, your debt repayment, maybe it's thinking about retirement, really looking at it through a biblical lens and considering how to approach that season of life with regard to your lifestyle and your spending plan.

Maybe it's your giving journey. You want to talk about how to give wisely, whatever it might be. Give us a call. We'd love to tackle it with you.

800-525-7000 is the number to call. Let's tackle an email here today. We like to get to as many of these as we can during the broadcast. They come in to us at askrob at faithfi.com. Feel free to send one along.

This is a great one. Don is saying, I tithed on a large inheritance. The amount I tithed is more than my average annual income. Does that automatically mean I'll be audited by the IRS?

It's a great question, Don. Since inheritances are not considered income for federal tax purposes, you won't report the inheritance itself on your 1040. You probably will report the charitable contribution of the tithe, however, because it likely will be greater than the standard deduction, which means you'll itemize and therefore it'll show up. That said, you may hear from the IRS because it may appear to them that you're not reporting income if you're able to make such a large charitable donation. So just be prepared to show proof that you inherited a large sum and that you gave 10% of it to charity.

Make sure you get a receipt from your church. That would satisfy any inquiry from the IRS. Let me also suggest you consider using a CPA to do your taxes this year. If you don't normally, that person is likely skilled at avoiding an audit, perhaps by including additional paperwork or a written statement with your return. Also, your CPA could represent you if you're audited. Remember, this doesn't mean you'll automatically be audited. It's just that this kind of sizable charitable contribution, when out of the norm for you and way beyond your income for the year, is just going to make you much more likely to have an audit. So again, I think it might be worth you making this the year that you use a CPA. We appreciate that.

Quickly to Cleveland. Hi Carol, go right ahead. Hi, I'm the trustee of the family trust.

My mother passed away. We're selling her condo and it'll be about $250,000 that will come from the sale of that. I'm questioning if I have more taxes to pay because it's an irrevocable trust and how the distribution should go.

I know I can't rush into it, but just need a little guidance. Yeah, so a trust figures its income tax liability in much the same way that an individual does and has allowed most of the credits and deductions that an individual is allowed. Similarly, deductions not allowed to individuals are not allowed to trusts and that's true right up to the point of the trust making distributions. Now beneficiaries of a trust typically pay taxes on the distribution they receive from a trust's income rather than the trust paying the tax. However, beneficiaries aren't subject to taxes on distribution from the trust's principal, the original sum of money put into the trust. So when a trust makes a distribution, it deducts the income distributed on its tax return and then issues the beneficiary a form, a tax form called a K-1, a schedule K-1.

And that indicates how much of the beneficiary's distribution is interest income versus principal and how much the beneficiary can claim as taxable income when filing taxes. So it can get a little complicated. I hope that helps you understand it though.

Does that make sense? Perfect. Yeah, I was looking for those magic words and K-1 and all of that and I appreciate what you shared. Thank you so much. All right, Carol. God bless you. Thanks for calling today to Chicago.

Hi, Lynn. Go ahead. I am considering, I'm 67 now, I'm considering moving some of my IRA away from stocks and into bonds and I was wondering what's the best way of doing that and timing of it. Yeah, how much do you have in that IRA roughly? A million, I'm sorry, a million. Okay. And have you been making the investment decisions on that yourself, Lynn?

No, I haven't. As far as what stocks to invest in and that, no, I don't. Okay, I see. So you are making the decisions on which stocks, is that right? No, they are. Oh, they are. Got it, got it, got it.

No, my apologies. Yeah, so I would just do it over time. You know, this is a great time to have bonds. I'd be looking at which stocks, especially now that the market's rallied a good bit this year, although it's been fairly narrow in terms of the amount of stocks impacted, we have rallied quite a bit. So I think this is a good time because I think bonds will do well here.

I'd probably do it over six months, determine what your total allocation should be, stocks and bonds, and then just systematically move out of those stock positions based on which ones haven't really lost value and then over into the bonds. So hang on the line. We'll talk a bit more.

We'll be right back. To learn how Christian Credit Counselors can help you visit christiancreditcounselors.org. That's christiancreditcounselors.org or call 800-557-1985. My grocery bill went up 11% this year. Gas, utilities, rent, all went up, but my paycheck, the same. I also pay for my own healthcare, a huge expense. A friend recommended Christian Healthcare Ministries as an option to insurance and CHM helps pay for medical needs while allowing some breathing room in my budget. Open enrollment is here, so make the switch today with potential cost savings up to 40%. Christian Healthcare Ministries at chministries.org. Welcome back to Faith and Finance. I'm your host, Rob West.

The number to call is 800-525-7000. I'm looking forward to hearing from you as we take your calls and questions from across the country. In fact, let's head out to Chicago. Shauna, glad to have you back with us. You were holding patiently. We lost you and I'm delighted to get you on the air.

How can I help you? Thank you. To make it quick, I have a small business administration loan. It was originally $117,000 and I didn't pay much on it or anything on it for a couple of years, so it has more now. I've been thinking to try to pay it off as quickly as possible, but my accountant says, no, just pay your monthly payments that's required and don't worry about it and use that money some other way.

I am nearing retirement age, so I'll leave it right there. It's a small business administration loan and I might be going into an employed situation also. Okay, so how much do you owe on that SBA loan?

I think it's like $125,000. Alright, and you have the ability to pay it off? Is that what you're saying? Well, theoretically I might. I guess the thing would be what to pay off first.

We have a home, we're still paying on one car. Okay. Yeah, and you're able to cash flow that debt service out of the operations of the business? The business is changing, so I'm not quite sure what's going to happen.

I called you a couple of weeks ago with a couple of job options and right now neither one of them is an option, it looks like, so I'm not quite sure. So what would you do? Would you sell the business? Does it have value? No, I was just assuming that I can get another job that would have good cash flow.

The question would be where should my focus be on using that money to be in the best situation? Is the SBA loan personally guaranteed? I think so.

Okay. It is a corporation. Right, but if you guaranteed it personally, even if the business went under, you still owe the debt, right?

Most likely. Okay, and what is the interest rate on that? 3.75. Okay, and what other debts do you have? We only owe about 85,000 on our house and about 12,000 on a car maybe. Okay, and what's the interest rate on that? The house has been going up because it was not a fixed rate and you had advised me not to try to refinance right now while the interest rates are possibly hopefully coming to non.

Right. So I'm not sure the interest rate right now, it was getting around seven. Okay, yeah, that's challenging. Well, I'd probably focus on that home and try to get that down as you're able. Do you have six months of an emergency fund?

Not really. Okay, so I'd start there. Well, I do because I have a small business. I mean, I have a set by RA that has about 250,000 or so, so I do have some funds that I can take out now. Well, I would start by focusing on building up that emergency fund, number one. Number two, I would get with an advisor who can really look at your financial situation because you've got a lot of moving parts here. You've got a business, you've got some uncertainty in your future with regard to the business and your employment. I'm not saying you're in a bad position, but obviously that's a lot of debt for a business that may or may not be viable and you probably can't sell. So I think the key moving forward is to really do some planning, but I think given anything, having that emergency fund is going to be key and then keeping enough cash flow to service all the debt moving forward. Obviously, I don't like that interest rate at 7%, so I'd focus on that if you have extra or margin that you can apply toward any of the debts.

But beyond that, I would connect with a certified kingdom advisor just to have somebody look at your overall financial picture, help you do some planning on how to structure the debt, help you make some decisions with regard to your income and employment moving forward, and just walk alongside you as you navigate the business and your personal finances. Does that make sense, Shauna? Yeah, it does. How would I find one? Yeah, on our website. Just head to faithfi.com.

That's faithfi.com and click Find a CKA and you can do a zip code search. You can interview two or three at that point. Alright, sounds good. Thank you. Very good. We'll talk to you again hopefully real soon if we can help along the way. God bless you. 800-525-7000 is the number to call. Alright, let's round out the program here to Washington State. Hi, Kim.

Go right ahead. Yes, my husband and I passed her and we have a woman in our church who is 60 years old. She is on Social Security disability. She receives $2600 a month. That's her only income. She just received a letter from the Department of Retirement Systems for Washington State that she is receiving $22,000. It's a beneficiary account transfer. She called on that to see what that is and it's her ex-husband who passed away a couple of years ago. He had named her many years ago as a beneficiary for one of his retirement accounts. Anyway, she's just wondering whether she has to pay taxes on this $22,000. She did call Washington State. They said no.

We are just trying to confirm that. Yeah, I would check with a tax professional just because these can get complicated. I mean, generally what she receives as a death benefit would not be taxable. Obviously, if she draws income on that or it's in a qualified account of some kind, then it would be taxable as it comes out, but the actual receiving of the asset isn't taxable in and of itself. Anytime you have something unusual that's not just a part of your normal routine, it's always a good idea to get professional tax advice, somebody who can look at the actual document on what's being sent and consider all of the factors here and weigh in on whether she needs to pay tax on it. I wouldn't be able to give you a definitive on that without seeing much more, but I think you can certainly engage a tax professional, maybe somebody in your church that could help her today. We appreciate you calling on her behalf, though, Kim.

God bless you. Vanya, we don't have time for your call, but I see your question, which is better, save for an emergency fund, pay off debt, or do both. I would say if you have credit card debt up to $1,500 in an emergency fund, then focus on the credit cards.

If it's not credit card debt, then I'd go up to a full three months expenses and then focus on the debt. That's just my best advice. Thanks for calling today. Well, once again, our time went by way too fast, but tune in next time and we'll do it all over again. Before we go, I'd like to thank our incredible production team, Amy, Devin, Jim, Robert, Brandy, Rob, and Ben. Couldn't do it without them. Have a great rest of your day, and I'll see you again next time for another edition of Faith and Finance. Faith and Finance is provided by Faithfi and listeners like you.