Friday’s release of Big Bank earnings has revealed a somber picture of consumer credit health. While there’s been a slight dip in credit card delinquencies, the year-over-year figures show an increase in missed and late payments. To provide guidance on preventing delinquency, Martin Lynch from the Financial Counseling Association of America joins Wealth!

Lynch emphasizes the importance of budgeting, especially for those who see credit delinquencies on the horizon. He acknowledges a common approach to budgeting, with a majority of individuals avoiding it “like the plague because they don’t want to make any kind of reductions in their lifestyle.” However, Lynch encourages people to see budgeting as “a tool to preserve your lifestyle.”

To make budgeting more effective, Lynch advises individuals to “adopt a flexible mindset.” This approach involves identifying areas where costs can be reduced, with a particular emphasis on what he calls “softer reductions.” For example, cutting back on dining out can be an effective way to trim expenses.

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This post was written by Angel Smith

Video Transcript

Big bank earnings giving insight on the state of the consumer for JP Morgan Wells Fargo and Citi credit card delinquencies have dipped compared to the first quarter, but missed or late payments are actually up on an annual basis to break down by delinquencies have been on the rise and what you can do to avoid it.

We’ve got Martin Lynch, who’s the Financial Counseling Association of America President Martin.

Great to have you here and thanks so much for taking some time here on the show.

You see earnings reports like this come about and give us a little bit more update on where delinquencies stand for those who find themselves as part of that bucket that banks are reporting on.

What is the first step that they can take to eradicate some of their delinquency status?

Well, thanks for having me, Brad.

The first thing that, that people should do when they’re about to go delinquent or miss their first payment is to stop and do a budget.

I talk to a counselor if need be uh for assistance and figure out uh are there temporary reductions?

At least that can be made?

A lot of people treat budgeting like a four letter word.

Uh, and they avoid it like the plague because they don’t wanna uh make any kind of uh reductions in their lifestyle.

But really they should come at it from a different viewpoint.

Uh Look at it as a tool to preserve your lifestyle and it’s a lot easier to do.

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What are some of the common areas that you hear people looking at then their budget and saying, ok, I immediately need to think about cutting this or reducing this spend and, and especially when you think about some of those discretionary categories.

Well, when it comes to discretionary spending, it’s usually where the reductions can be made.

But those are the lifestyle, uh, standards that, that people get used to or get wedded to.

So it’s tough for a lot of folks.

Uh, but if they adopt that flexible mindset, they can find that they can cut, um, their cable service for the next six months or for the next year, reduce, uh, make similar reductions like that instead of dining out, uh, regularly cut it down to one or two times a month.

Those kind of, of temporary softer reductions are easy to accommodate and they’re actually empowering too because they’re gonna give you that sense of control over your budget when you start making payments on time again.

Uh, that’s a good feeling and it’s addictive in a way, you know, you, you really assume control over every dollar that’s coming out of your wallet, say that you have gone into a delinquent status or have become delinquent on payments.

So, now you have to think about.

All right, what are the first steps I can take on that pathway to getting back into good standing.

Well, unfortunately, a lot of folks, uh, make a couple of critical mistakes at that point.

Um, they’ll turn to a debt settlement company.

Uh, they dominate, uh, late night media advertising.

Uh Folks are lured by the promise that they can repay half of what they owe.

Uh There’s a dirty secret.

The banks don’t want you to know none of that is true.

Uh Banks want you to repay your principal in full plus interest.

So, uh so we encourage folks to look at uh communicating with their lenders.

Uh If you come through a nonprofit counseling agency, uh folks will be surprised that in addition to our free counseling, we’ll work with your lenders to reduce your interest rates from 25 or 26% down to six or seven or 8%.

And that gives the breathing room in the budget that allows people to make timely payments, uh maintain uh a good uh communication uh standard with their lenders uh and emerge in a much healthier way.

They won’t destroy their credit, they’ll, they’ll come out.

Ok?