Katie Kelton | (TNS) Bankrate.com
Credit cards can be powerful tools to purchase things you need and build a strong credit history, but they can also be risky. The cost of carrying credit card debt is high. Even so, more Americans — 50%, according to new Bankrate survey data — are carrying a balance today than they have been since March 2020.
With interest rates at an all-time high, you might wonder why cardholders are carrying that balance. But it’s not a simple answer. Economic factors like inflation and interest rates are making it hard for some Americans to make ends meet, survey data shows. In some cases, people might be doom spending or going into debt for fun.
Bankrate’s key insights on credit card debt in 2024
—One-half of American credit cardholders carry a credit card balance from month to month. That’s 50% of cardholders, compared to 44% in January 2024 and 60% in March 2020.
—The likelihood of having credit card debt increases with age until the boomer generation. Forty-two percent of Gen Z cardholders (ages 18-27), 53% of millennials (ages 28-43), 60% of Gen Xers (ages 44-59) and 48% of boomers (ages 60-78) carry a balance month to month.
—Inflation and high interest rates are factors for many Americans. Thirty-four percent of debtors say inflation and 32% say high interest rates have made their credit card debt burdens worse since the beginning of 2022.
The number of Americans with credit card debt is at a four-year high
New Bankrate data tells a story about Americans’ debt: More people are carrying debt on their credit cards than they have since the early pandemic days. But that situation may or may not be by choice.
Fifty percent of credit cardholders carry debt from month to month. That’s up from 44% in January and is the highest figure Bankrate has observed since March 2020, when 60% of cardholders carried debt from month to month.
“Credit card balances fell sharply in 2020 as many Americans spent less during the pandemic and used stimulus funds to pay down debt,” explains Rossman.
He continues: “Since the beginning of 2021, however, credit card balances have been off to the races. According to Federal Reserve data, Americans owe 45% more now on their credit cards than they did in early 2021. And the credit card delinquency rate is at its highest point since 2011.”
No generation is free from the debt burden, but the likelihood of carrying a credit card balance does rise with age before dropping with the boomer generation. Forty-two percent of Gen Zers, 53% of millennials, 60% of Gen Xers and 48% of boomers with credit cards carry a balance from month to month.
Perhaps unsurprisingly, the likelihood of carrying a balance falls as income increases. Fifty-eight percent of cardholders with annual household incomes under $50,000 carry a balance month to month, compared to 54% with annual household incomes between $50,000 and $79,999, 46% with annual household incomes between $80,000 and $99,999 and 43% with annual household incomes of $100,000+.
Credit card debt is persistent, with 3 in 5 Americans carrying it for more than a year
The length of time cardholders are carrying debt may be a sign balances have become more difficult to pay off. Three in 5 of those with credit card debt (60%) have been in credit card debt for at least a year, up from 50% in 2021.
The likelihood of carrying debt for at least a year gets higher as you get older but stays relatively consistent with income. Here’s how many credit card debtors have carried debt for a year or more by generation:
—51% of Gen Zers
—58% of millennials
—61% of Gen Xers
—65% of boomers
And here’s how many debtors have carried debt for a year or more by income:
—62% with annual household incomes under $50,000
—56% with annual household incomes between $50,000 and $79,999
—61% with annual household incomes between $80,000 and $99,999
—62% with annual household incomes of $100,000+
Debtors blame inflation and interest rates for making their debt burden worse
The survey data shows that Americans feel the economy isn’t helping their debt situation.
About a third (34%) of credit card debtors say inflation has made their credit card debt burdens worse since the beginning of 2022, which is when the Fed started raising interest rates to counteract increasing inflation.
A similar share (32%) say high interest rates have made their credit card debt burdens worse since the beginning of 2022. These themes intertwine.
If you think of your income as divided into slices, the slice for everyday expenses might have grown in light of recent inflation. For example, groceries are 25.1% more expensive than they were before the pandemic, gas is 28.4% more expensive and rent is 23.9% more expensive. Because of that, the slice of your income dedicated to debt repayment may have shrunk.
At the same time, credit card interest rates are hovering at just more than 20%, so your credit card balance might be growing rapidly. It’s a double whammy, that could explain the uncertainty Americans feel about getting out of debt.
Roughly one in four Americans with credit card debt (24%) feel less confident in their ability to get out of credit card debt now than they did at the beginning of 2022. Furthermore, about one in six (17%) worry they might not be able to make their minimum credit card payments at some point in the next six months.
And just over two in five (42%) have a plan to pay off their credit card debt.
FAQs
—How do I get out of credit card debt?
Maybe you’re among the 50% of Americans carrying credit card debt. While it may feel overwhelming, “credit card debt won’t go away on its own,” says Rossman. “If you make minimum payments toward the average balance ($6,218, according to TransUnion) at the average credit card rate (20.71%), you’ll be in debt for 18 years and will owe more than $9,000 in interest.”To truly make progress on your debt, you’ll want to make more than the minimum payment. Start by looking at your budget — income and expenses — to see how much wiggle room there is for debt repayment. You may need to reduce expenses or start a side hustle to make the numbers work.Once you have money set aside for debt, you can consider using the avalanche repayment method (paying off high interest debt first) or the snowball method (paying off small debt balances first).Learn more about how to pay off credit card debt.
—How do balance transfer cards work?
For people who can qualify, a balance transfer card can help you save money on interest. These cards offer new cardholders a 0% intro APR for a set period of time on balances they transfer to the card. The balance transfer often requires a fee of between 3% and 5%, but cardholders could still come out ahead given what you stand to save on interest.“My favorite tip is to move your debt to a new card with a lengthy 0% balance transfer promotion; some of these last as long as 21 months,” says Rossman.Before doing a balance transfer, it’s a good idea to have a plan in place for paying off the balance you transfer — ideally before the intro period ends and the regular APR kicks in. After that, it becomes another interest-accruing card.
—How does credit card debt affect my credit score?
Credit card debt doesn’t directly impact your credit score, but it can have indirect effects.Your credit score is made up of several factors, like your payment history, credit utilization, length of credit history, new credit and credit mix. If you’re not always making minimum payments on your card balance, that can hurt your payment history. And if you’re using a lot of your available credit (more than 30%) by carrying a balance, that hurts your credit utilization ratio. Both of these can ding your credit score.“If you have a lot of debt or a lower credit score, nonprofit credit counseling is probably your best bet,” Rossman suggests.If you’re ready to begin rebuilding credit, consider a credit card for bad credit. These cards can help you boost your credit score and access better interest rates and terms in the future. But first, you’ll want to get any outstanding debt under control.
Methodology
Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. The total sample size was 2,437 U.S. adults, of whom 1,877 were credit card holders and 930 carry a balance on their credit card(s). Fieldwork was undertaken between June 24-26, 2024. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
March 2020 Long Term Debt Survey: All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,526 adults. Fieldwork was undertaken between March 4-6, 2020. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).
(Visit Bankrate online at bankrate.com.)
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