An increasing number of Americans are facing potentially disruptive credit card debt

Americans are piling on credit card debt at a time when interest rates are at record levels.

Multiple surveys show that American consumers are sinking deeper into credit card debt. A new survey from Bankrate, the consumer finance company, found 46 percent of cardholders Carry credit card balances month to month, up from 39 percent a year ago.

A survey conducted by NerdWallet, the personal finance company, found the average American household You carry $7,486 in credit card debt, an increase of 29 percent over the previous year. A third survey, from personal finance website GOBankingRates, found that 14 million Americans are in debt More than $10,000 in credit card debt.

Card balances are growing at a time when consumers may find it more difficult than ever to pay them off. Credit card interest rates Hit 20 percent in late 2022, according to the Federal Reserve, the highest level in nearly 30 years of tracking.

Buy now, pay later is a classic consumer motivation.

“Americans love their credit cards,” said Matt Schulz, senior credit analyst at LendingTree, the consumer finance company. “We always have credit card debt, and it’s almost always on the rise.”

collective nation Credit card balance It has a total value of $925 billion, according to LendingTree. This is just below the historic record of $927 billion, set in pre-pandemic 2019.

But surveys indicate that the recent rise in credit card debt is less about impulse buying and more about survival. American wages are on the rise. Consumer prices are rising faster. Simply put, things cost more.

“When grocery, gas and utility costs go up, it’s not like you can cancel them like a Spotify subscription,” Schulz said.

Over the past three years, according to a NerdWallet analysis, average income has grown by 7 percent, while consumer costs have risen by 16 percent.

a Dec survey US News & World Report asked consumers to provide the top reason for their credit card debt. The most common response was “increased costs coupled with insufficient income”. A significant number of respondents cited unexpected expenses, medical emergencies, job losses, and auto repairs. Only a tenth of those with credit card debt blamed their balances on frivolous spending.

“The stress that people feel from rising costs at the grocery store or the gas pump, creates this situation where people are using more of their income even though they’re not consuming more,” said Bruce McClary, senior vice president at the nonprofit. National Corporation for Credit Counseling. “The things they usually buy cost more.”

American credit card customers are divided into two camps. One group, large but shrinking, pays off its card balance every month. Card companies call these customers “lost,” a term full of irony. Customers who don’t carry credit card debt don’t make as much money for the card companies because they don’t spend as much money for the privilege of carrying a credit card.

The other group, smaller but growing, carries credit card debt from month to month. In a US News survey, 15 percent of respondents reported having 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 an average credit card debt of $7,486, as measured by NerdWallet, and an average interest rate of 20.4 percent, would have to spend $695 per month to take down the debt in 12 months, according to Online interest calculator.

What if the family can only afford $200 a month? Then the balance will be repaid for five years. By the time the debt is paid off, assuming a fixed interest rate, the family will have spent $4,239 in addition to the $7,486 they have already borrowed. All of this assumes that the family never uses the card again.

Credit card rates go up along with interest rates in general. The Federal Reserve will raise interest rates by more than 4 percentage points in 2022, one of the most dramatic money tightening campaigns in US history, to curb inflation.

Rising interest rates have pushed mortgage rates to their highest levels in more than a decade, around 7 percent.

Credit card rates range much higher than mortgage rates. Lenders, wanting to make a profit, issue cards to consumers with a wide range of credit scores, with the attendant risk that some customers will default on debt.

As recently as 2016, average card rates were hovering in the 13 to 14 percent range: high but not quite as high as today. At the start of 2022, the average credit card price came with an interest rate of 16 percent. By the end of the year, the average was over 20 percent.

Many card customers —43 percent in One recent survey – I don’t know how much interest they pay.

“I have several cards of my own, and I can’t tell you the prices of any of them,” said Sarah Ratner, a credit card expert at NerdWallet. “When you pay your bills in full on time each month, that’s not a problem.”

Lenders generally market credit cards less on interest rates and more on “rewards,” offering perks such as a small share of cash returned to the consumer on certain purchases, credits for airfare, or “points” that can be redeemed for anything. number of goods or services.

“When you look at a credit card company’s marketing materials, what do you see? You see the rewards,” said Rodney Sullivan, executive director of the Richard A. Mayo Center for Asset Management at the University of Virginia’s Darden School of Business. “They’re always front and center.”

Credit card customers also tend to focus more on rewards than rates. In a recent Bankrate survey, 36 percent of cardholders stated that rewards are the best feature of their card. Only 10 percent indicated a competitive interest rate.

“You certainly see a lot of people who are attracted to rewards because they are tempting,” Rathner said. “Many of them are ambitious.”

Flight attendants roam the aisles of planes bidding for tickets that might one day result in a free first-class ticket to Rome.

“Humans, by our very nature, love rewards,” Sullivan said. “We love getting benefits.”

Credit card rewards can offer meaningful benefits to a cardholder who charges a lot and pays off the balance each month. He fails to pay off the debt, however, and the game soon turns against the player.

“These bonuses aren’t worth the 20 percent you’re going to pay,” Sullivan said.

Are you trying to escape the hole of credit card debt? Here are six strategies to consider.

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