How the Latin American community really feels about revolving debt.
Relationships with debt are personal, but often a race or ethnic group can share common perspectives. For instance, in Latin American countries, while credit card usage has increased in recent years, it’s still not as prevalent as it is here – only 22% of the region’s population uses credit. With that in mind, Consolidated Credit wanted to know how the Hispanic community in the U.S. felt about credit cards and the debt they generate.
Are debt problems caused by a lack of financial education?
One interesting result from the survey is that over half (57.07%) of respondents feel that owning significant money to creditors is not a sign of a bad financial situation, but a lack of education and organization overall on the part of the borrower.
This answer was chosen over reasons that are commonly given by clients during credit counseling consultations as the root cause of their debt – reasons like unemployment, illness and major unexpected repairs. And it’s encouraging because it means the Hispanic community at large may recognize that a stable financial outlook shouldn’t have to turn to credit in emergencies. In fact, if you have to use a credit card to get by during one of these events it may actually be a sign of financial weakness.
The Hispanic community polled seems to be picking up on the idea that if you’re good with money and debt you should be able to create a financial safety net for yourself to handle issues that may arise. Even if you face unemployment, if you did the right thing with your budget prior to that event, you should have 3-6 months of budgeted expenses set aside in savings to help you get by until you can find another source of income.
Paying more is good, paying in-full is best
One area where survey respondents may be missing the mark is when it comes to how much debt you should pay off at the end of every month. Less than one in ten respondents (7.23%) pay off their balance in full to avoid interest charges. Over half (53.54%) pay more than the minimum, which is good but not great, and over one third (39.23%) pay only the minimum when money is tight.
Paying in-full every month is the way to go when it comes to credit cards, because it minimizes interest charges while also reducing your risk for debt problems. Ideally, you should be paying in-full when you can, and if you have a bad month you should still be able to pay more than the minimum in most cases. Making minimum payments only is a sure sign of debt problems.
Debt free gives you freedom to grow
These days, most people are focused on the fact that student debt creates life delays – i.e. if a borrower has sizeable student loan debt to repay, they have to put off major life goals like buying a home or having kids because they can’t afford it until they’re debt-free.
However, the last question on this survey seems to indicate credit card debt may be contributing to life delays as well in the Hispanic community. Once survey respondents achieve freedom from debt, they have big plans like buying a home and saving for retirement or a child’s college education.
All of those are great goals, but not all of them should be put off until a person achieves freedom from debt. Specifically, saving for retirement and your children’s education is critical and putting it off until you’re debt-free can be risky because if you never achieve that freedom, then you never end up saving.
In a best case scenario your budget should have room to do both – save and pay off debt at the same time. You should use no more than 10% of your income to pay off credit cards and you should be saving at least 10% of your income every month… and that’s not the same 10%. You can find general guidelines for how your budget should be broken up in Consolidated Credit American Spending Statistics guide.