A growing number of Americans are facing potentially crippling credit-card debt as interest rates reach historic highs. Multiple polls show American consumers sinking deeper into credit-card debt. A new survey from Bankrate found 46% of cardholders carrying credit-card balances from month to month, up from 39% a year ago. A survey by NerdWallet found the average U.S. household carrying $7,486 in credit-card debt, a 29% increase from a year earlier. A third poll from GOBankingRates found that 14 million Americans owe more than $10,000 in credit-card debt.
Card balances are rising at a time when consumers may find it harder than ever to pay them down. Credit-card interest rates hit 20% in late 2022, according to the Federal Reserve, the highest level in nearly 30 years of tracking. This makes it harder for consumers to pay down their credit card balances.
The recent rise in credit-card debt is less about impulse buying and more about survival. American wages are rising, but consumer prices are rising faster. Simply put, stuff costs more. The pressure people are feeling from rising costs at the grocery store or gas pump, it creates this situation where people are using more of their income even though they’re not consuming more, said Bruce McClary, a senior vice president at the nonprofit National Foundation for Credit Counseling.
America’s credit-card customers fall into two camps. One group, large but shrinking, pays off its card balance every month. Card companies call those customers “deadbeats,” a term laden with irony. Customers who carry no credit-card debt don’t earn much money for the card companies because they don’t spend much money for the privilege of carrying a credit card. The other group, smaller but growing, carries credit-card debt from one month to the next. In the U.S. News survey, 15% of respondents reported card balances of $10,000 or more.
At current interest rates, a five-figure credit-card balance can cripple a household budget. A household with the average credit-card debt of $7,486, as measured by NerdWallet, and the average interest rate, 20.4%, would have to spend $695 a month to retire the debt in 12 months, according to an online interest calculator. And what if the family can afford only $200 a month? Then it will be paying off the balance for five years. By the time the debt is repaid, assuming a constant interest rate, the family will have spent $4,239 on top of the $7,486 it actually borrowed.
Credit-card rates are rising along with interest rates generally, which means that the burden of credit-card debt is likely to become increasingly heavy for many American households. In addition to the financial burden, credit-card debt can also have a significant impact on the mental health and overall well-being of individuals and families.
It is important for consumers to be aware of the potential risks associated with credit-card debt and to use credit cards responsibly. Consumers can take steps to manage their credit-card debt, such as creating a budget, paying more than the minimum payment, and consolidating debt. If you are struggling to manage your credit-card debt, it may be helpful to speak with a financial advisor or credit counselor for assistance.