When planning financial resolutions for 2025, tackling debt often tops the list, according to a recent survey by Bankrate. This isn’t surprising, considering nearly 89% of Americans have set a primary financial target for the new year, based on the November survey of about 2,500 adults.
Debt repayment emerged as the leading goal for 21% of respondents. Yet, people are also eyeing other financial objectives: 12% aim to save more for emergencies, 11% are on the lookout for a better-paying job or additional income source, 10% want to improve their budgeting and spending habits, and 8% are focused on increasing retirement savings and investments. Others are saving for non-essentials (6%) or planning to purchase a new home (4%).
These goals wrap up a year that presented its own financial hurdles. Even though inflation has slowed, some prices remain stubbornly high, pushing credit card debt to an all-time high of $1.17 trillion. The average credit card debt per borrower has shot up to $6,380 in the third quarter, according to TransUnion.
Interest rates could help ease the burden of this debt. On Wednesday, the Federal Reserve cut rates for the third time since September, bringing the total reduction to one percentage point. However, top-tier credit cardholders, those with exceptional credit scores, are still facing average rates of 20.35%, slightly down from 20.79% in August, as noted by Mark Hamrick, a senior economic analyst at Bankrate.
“If you’re accumulating debt without paying it down significantly, it can be damaging to your finances,” Hamrick noted. “It’s encouraging to see many people recognizing that addressing debt will be a priority in the coming year.”
To shift debt off their shoulders, many people might need to rethink their financial priorities. The Allianz Life Insurance Company of North America recently reported that a substantial number of Americans acknowledge having poor financial habits. Among those, 30% admit to overspending on unnecessary items, 28% save no money at all, 27% save sparingly, 23% don’t pay down debt fast enough, and 21% spend beyond their means.
For those keen to reduce their debt, Matt Schulz, chief credit analyst at LendingTree, suggests adopting a proactive stance. “The Federal Reserve lowering rates isn’t enough to rescue you; it’s up to individuals to take control,” Schulz advised.
Calling your credit card company to negotiate a lower interest rate is often successful, with around 76% of people who tried securing a better rate in the past year achieving it, according to LendingTree. “It’s certainly worth making the call,” Schulz remarked.
Additionally, consider looking out for 0% balance transfer offers to secure no-interest deals temporarily, though fees might apply. Alternatively, a personal loan could help consolidate debts at a lower rate.
While focusing on debt reduction, it remains crucial to maintain personal savings. Experts typically suggest setting aside enough funds to cover three to six months of living expenses for unforeseen emergencies. This cushion can alleviate financial strain when unexpected costs arise, like car repairs or a vet bill, Schulz pointed out.
Balancing debt reduction with saving will naturally extend the timeframe needed to eliminate debt, admit experts. But with a solid emergency fund, the repetitive cycle of accumulating debt could finally be broken.
