PowerPay Your Way Out of Debt

 

Are you still revolving a balance on your credit card for purchases made during the 2024 holiday season or before? If so, you are not alone. Nearly half (48%) of credit cardholders are in the same boat, especially young adults in the Millennial and Gen Z generations.

I recently attended a webinar about current U.S. debt statistics and features of the PowerPay debt repayment acceleration program as a tool to reduce debt repayment time and interest costs. PowerPay is a free online program developed by Utah State University Cooperative Extension. Below are seven key webinar take-aways:

Outstanding Debt- The average American carries almost $7,000 in credit card debt, up from about $5,000 in 2021, largely due to inflation. In addition, average total debt per U.S. household is $149,358, with mortgage debt comprising 70% of this amount.

Causes of Debt- One cause is inflation, especially the historically high percentage increases in the Consumer Price Index seen in 2022. Credit card balances increased more than wages. Two other causes are medical debt (the primary reason that people file for bankruptcy) and child care costs, which have risen at nearly double the pace of overall inflation.

Student Loans- About 42.8 million Americans have outstanding federal student loan debt and 64% of student loans are carried by women, who earn lower average incomes than men. The average student loan balance in the U.S. in 2024 is $37,853 per borrower. Absent any debt acceleration, it may take borrowers up to 20 years to repay what they owe.

Debt Repayment Options- There are different ways to deal with debt including credit counseling with a non-profit agency, a debt consolidation loan, bankruptcy, and the use of PowerPay to create a debt acceleration payment calendar. PowerPay works by applying the monthly payment on a repaid debt to the amounts owed to remaining creditors.

Avalanche vs. Snowball Method-  PowerPay can do debt reduction calculations using both methods. The avalanche method prioritizes paying off the debt with the highest interest rate first, even if it has a larger balance. The "snowball method" prioritizes paying off the smallest debt balance first, regardless of interest rates on debts.

Benefits of PowerPay- PowerPay crunches all the numbers for users to show them how much time and interest they can save by following a personalized debt reduction calendar vs. paying off debts without PowerPay. Money going toward combined debt owed to multiple creditors remains constant but the way it is allocated to monthly payments changes as debts are repaid.

Key Caveat- The key to success when using PowerPay is not accumulating new debt. The debt reduction calendar that is created is based on existing debt only and will not work if balances on outstanding debts continue to grow.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.