Credit card delinquency rates have been skyrocketing as of late, and scores of Americans are finding it harder to make on-time and in-full payments. Some people are still trying to catch their breath after spending on holiday shopping, which up-ticked an average of 14% more than 2022.
Despite this, credit card usage is even more popular than ever.
For instance, investing platform Robinhood recently launched its own Gold Card, which provides cards for up to five family members. The Apple Card has similar offering, which allow family members to share a credit card and build credit.
“Traditionally, the way to allow family members to use your credit card account has been to add them as authorized users,” Sara Rathner, credit cards expert at NerdWallet on family credit cards said in a statement to ESSENCE. “Some cards are expanding upon that concept and giving primary card holders more control by allowing them to set spending limits. This provides a way for everyone to be on the same page about what they can spend. For parents, it can give helpful parameters for kids who are learning the basics of managing their spending, and also help kids establish their credit histories.”
But with that, dangers of debt are a looming reality as well.
Fortunately there is a way to budget your way into financial freedom.
50/30/20 rule
This is a straightforward budgeting tactic that buckets your spending in three areas: 50% of your monthly after-tax income should be allocated to your necessities, 30% should be put toward “wants” (dining out, vacations, etc.), and the 20% that’s left should be applied toward your financial goals, like paying off credit card debt.
Using less than 40% of income for debt
“From a lender’s standpoint, they typically don’t want to see more than 36% of gross monthly income being spent on debt,” says Douglas Boneparth, CFP, president of Bone Fide Wealth and co-author of The Millennial Money Fix in an interview with CNBC.
Putting spending caps on your credit cards the prevent you from spending more than 36% of the entire limit is a good way to keep you on track.