Presidential hopeful and Wisconsin Governor Scott Walker is in some headline-making credit card debt. According to financial disclosure documents required of candidates, Walker is carrying between $10,000 and $15,000 on a Barclaycard credit card with a 27.24 percent APR, a similar amount at 11.99 percent on a Bank of America card, and about $100,000 student loans (taken out for his children).
While this is leading to lots of speculation about how this will affect his campaign, Walker’s debt may seem only too familiar to many American consumers. According to a March 2015 survey from the National Foundation for Credit Counseling, one-third of consumers carry card debt from month to month and one in 10 adults rolls over at least $2,500. At a high interest rate (say, 27.24 percent), a balance of that size can quickly balloon.
On behalf of those in Walker’s boat, we asked a personal finance experts for their advice.
Do something about that high interest rate
The average card APR (as of July 2015) is 15 percent, so that whopping 27.24 percent Walker is paying on one card gave our experts pause.
“27 percent interest is a little high for a credit card, so that pushes me into wondering why it’s so high,” says Liz Ludchak, personal finance coach with mpowered, a non-profit money management and coaching organization based in Denver.
One possible reason: less-than-ideal credit. Walker’s credit reports and FICO score are obviously not public. But cards for people with poor credit generally charge higher APRs than cards for excellent credit. And that’s not necessarily a bad thing.
“That higher-interest-rate card could be a bridge toward establishing a healthy credit history and graduating to a lower-interest-rate card in the future,” says Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling.
Another possibility: A delinquent payment in the past triggered the issuer’s penalty APR – the high interest rate reserved for those who break certain rules. While it’s in effect, expect your balance to balloon – and possibly approach your credit limit (bad news for your credit score).
“When you have a high-interest card that charges above the average, you have to be very careful not to carry a balance month to month,” McClary says.
In other words, killing the balance is key, and time is of the essence. McClary suggests calling the issuer and asking for a lower rate (read our negotiation tips here) to shave off the time it takes to repay the debt. Not having success? Shop around for a card with a lower rate. Assuming your credit is in good shape, it’s an option – and one that might come in handy while negotiating with your current issuer.
“Let them know you’re looking for better offers from other creditors,” McClary says. “There’s no guarantee, but it’s a bargaining chip you can use.”
If you’re unable to secure a lower rate, ask if your issuer offers what’s called a hardship program. If your circumstances fit your bank’s requirements, you could end up with a lower interest rate for a certain length of time (in exchange for shutting down the card for future purposes).
“Some banks are more receptive to that than others,” says John Szalicki, credit counseling manager at Cambridge Credit Counseling.
Treat balance transfers with caution
Speaking of shopping for a lower rate, why not just do a balance transfer from the get-go? After all, plenty of cards offer intro periods with 0 percent interest for six months or more. It’s a strategy Ludchak is hesitant to recommend.
“Many people slow down [payments] because they think they have six months to figure it out,” she says. “Then they turn around and charge up the original account they never closed. And that 0 percent card eventually turns into 22 percent interest after six months.”
A balance transfer may be an option for certain consumers, though, Ludchak says – those who vanquish the debt as quickly as they would if they had the old higher rate breathing down their neck.
“There has to be the promise you’re still going to knock it out,” she says.
Don’t ignore the student debt
While the card debt may be more headline-worthy, Walker’s student debt dwarfs it. And he’s not alone.
“More and more people are calling us for help with their student loans,” Szalicki says.
According to Ludchak, mpowered commonly sees clients with student loan debts between $60,000 and $100,000.
“He might have multiple children he’s been doing Parent PLUS loans for, so it could easily be [$100,000],” she says.
When dealing with student loans, Szalicki recommends contacting the loan servicer to see if there’s a better payment plan available. Cambridge Credit Counseling (and some other non-profit credit counseling organizations) provide student debt counseling for federal loans and contact providers on clients’ behalf.
“When we do their counseling and call their provider, there are plans that are so much better for the consumer that aren’t always automatically extended by the provider,” Szalicki says. “You have to ask for them.”
Set a budget and plan of attack
There are several schools of thought in which debt to tackle first, Szalicki notes. Concentrating first on the balance with the highest interest rate makes the most financial sense, as it saves money in the long run. But paying off the smallest balance can yield early psychological victories and keep you motivated.
It might also make sense to temporarily defer the student loans (which are almost certainly at a lower interest rate) to free up more money to throw at the high-interest debt, Ludchak says.
In whatever order Walker pays off his debts, fine-tuning the family budget may also be necessary. In fact, that’s part of the financial coaching that credit counseling clients usually undergo.
“We try to get an idea of whether the person is tracking their finances correctly and if there’s a hole in the budget all the money is falling through,” Ludchak says.
Cutting expenses is only part of the puzzle, though.
“Generate more income if you can,” Szalicki says. For example, if you always get a big tax refund, it might make more sense to adjust your withholding to give yourself more money each month (to put toward your debts, naturally).
“I run into a lot of people who don’t even look at those things,” Szalicki says. “If you have a $2,000 tax refund, that’s almost $200 more a month that could be in your pocket.”
If Walker’s bid for the White House is successful, he might have a unique source of income back in Wisconsin.
“Maybe he rents his house out,” Ludchak says. “Someone may want to rent out the former residence of a president.”
Consider professional help
Does Walker need credit counseling? And should you consider it if your debts resemble his? Consider scheduling a session with a credit counselor if you’re carrying a balance month to month and making only the minimum payments, McClary says. Even if an official debt management plan (in which a credit counseling agency works with your creditors directly) isn’t deemed necessary, you can benefit from a neutral perspective.
“I liken it to being in the trenches in the fog of war,” McClary says. “Sometimes it helps to get that aerial view and see the entire battlefield so you can start being more strategic in how you’re going to take on your debt and bring your budget back into control.”