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Financial Literacy Month | Biggest pitfalls, mistakes and how to dig your way out

Consumer debt reached $14.56 trillion after the fourth quarter of 2020, according to the New York Federal Reserve.

TEMPLE, Texas — Debt remains a major problem in America, according to the New York Federal Reserve and debt.org, which showed consumer debt in 2020 sat at almost 14.5 percent.

Lourdes Zuniga, the Executive Director of Financial Health Pathways of Austin, said the biggest mistake people make is they overspend and urges people to know what you have and spend less, even if it makes life a little uncomfortable for awhile.

"I think people think that I have a credit card and so I am going to use it and so they run it," she said. "Try not to do that. The biggest mistake people make is overspending and living outside of their means."

Bill Fay, who writes for debt.org, wrote in an updated 2021 piece for the site about debt in four main areas:

  • Home — Total mortgage debt rose to $10.4-trillion, an increase of $1 trillion from the same juncture in 2017. Fay called the increase in this type of debt is a good thing overall.
  • Auto — Total auto debt in Q4 of 2020 is $1.37 trillion, a jump of $100 billion from the same time in 2018.
  • Student Loans — They continue to escalate, growing to a record $1.56 trillion in Q4 of 2020, up $100 billion from the same juncture in 2018. The average student debt in 2020 was $38,792.
  • Credit Cards — Credit-card loans were $820 billion in Q4 of 2020, reflecting a drop in consumer spending during the pandemic after this debt category peaked at $930 billion a year earlier. The good news, credit card debt actually fell in 2020, the first drop in any major consumer debt category in seven years.

Zuniga, who has helped a lot of low income families find financial freedom, said her biggest piece of advice to anyone who is struggling, avoid predatory lenders at all costs, even if it means you have to buckle up for a rougher road ahead.

"Avoid going to Payday Loans, avoid going to predatory lending, and some auto loans because they, those products are designed not to ever have an end day," she said. "Read the fine print and everything that they do is, you'll be in that cycle forever."

The Pew Charitable Trusts, an organization aimed at informing the public by providing useful data that illuminate the issues and trends shaping our world, said most payday loans are unaffordable for most borrowers and are tied to their pay cycle.

"The average payday loan requires a lump-sum repayment of $430 on the next payday, consuming 36 percent of an average borrower’s gross paycheck," the organization stated on their website. "However, research shows that most borrowers can afford no more than 5 percent while still covering basic expenses."

According to PEW, the average payday loan borrower is in debt for five months of the year, spending an average of $520 in fees to repeatedly borrow $375. The average fee at a storefront loan business is $55 per two weeks.

Texas has no specified maximum loan amount that borrowers can take. There is no fixed maximum financing fee either with an APR that can be more than 400%.

While Zuniga has urged many before to stop with payday loans, she also said people need to stop running from their financial problems, request a free credit report every year and make a plan with those you owe money to.

"People are very forgiving and I don't think we see that from the collectors, but when you contact them and show good faith often times they are willing to negotiate with you as long as you are willing to make that commitment to them and I am going to pay you," she said.