Average credit card debt: In the fourth quarter of 2023, credit card debt in the US increased by $50 billion, or 4.6%, over the same period the year before, to $1.13 trillion.
Rising inflation and interest rates were two of the many causes of this rise. Americans will spend more in interest and have less discretionary cash for financial goals like retirement savings when their credit card debt rises.
Usual Credit Card Debt in America
The Federal Reserve Bank of New York reports that as of the fourth quarter of 2023, Americans owed $17.5 trillion, of which $1.13 trillion was credit card debt. Another $12.25 trillion of the total is made up of mortgage balances and $1.61 trillion of vehicle loans.
Credit agency TransUnion reports that in the fourth quarter of 2023, the average balance per cardholder hit an all-time high of $6,360.
According to Investopedia, credit card interest rates increased as well, peaking in the fourth quarter of 2023 at an average annual percentage rate (APR) of 21.47%, up significantly from 15.05% in 2019.
Because more of the minimum monthly payment goes toward interest rather than principal, higher interest rates can make it harder to pay down loans.
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An average American has how many credit cards?
The credit agency Experian reports that, on average, Americans own 3.84 credit cards, or little less than four. How many credit cards, therefore, should you own? Individuals will have different answers, but using several credit cards can help you optimize your benefits as long as you can adhere to several payment dates and spend just what you can pay off in full each billing cycle.
Regional Variations in Credit Card Debt
According to the most recent data from Q3 2023 from the credit company Experian, Alaska has the most credit card debt per person, with $7,863, while Iowa has the least, with $5,227. It may not come as a surprise that Alaska has the sixth highest cost of living and Iowa has the ninth lowest. This could help explain some of the differences.
The remaining states in the top five for lowest credit card debt are:
- Wisconsin ($5,242)
- Kentucky ($5,304)
- West Virginia ($5,348)
- Mississippi ($5,415)
The remaining states (and, in one case, a district) of the top five for highest credit card debt are:
- Washington, D.C. ($7,548)
- New Jersey ($7,401)
- Connecticut ($7,381)
- Maryland ($7,282)
How much debt is too much?
How much credit card debt is excessive is the subject of no hard-and-fast rules. Though it’s best to spend only what you can afford to pay off in full each month, every household has a unique budget, hence, the same balance can have varying effects on various customers.
There are, nevertheless, a few ways you might assess your circumstances to see if your credit card debt load is excessive:
- You struggle to make even the bare minimum payment each month.
- It seems to you that your credit card debt is increasing rather than decreasing with time.
- Over 30% of your credit limit is being used at any one time, or your credit utilization rate.
- Making all of your debt payments is a challenge for you.
Advice on clearing credit card debt
Here are some doable tactics to begin reducing your credit card debt if you’re having trouble. As you look into credit card debt payoff alternatives, concentrate on the ones that suit your objectives and financial status the best.
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Give up using cards
With every month that goes by, paying off your credit cards while you’re still using them amounts to taking two steps forward and one step back.
If you’re compelled to use your credit cards, think about cutting them up; you can always get new ones later. To budget your financial flow in the interim, think about using an envelope with just cash.
“Keeping within a budget can be difficult in the current economy due to inflation and rising interest rates. Record your earnings and outlays and make a reasonable spending plan for yourself. “Budgeting can help you identify areas where you can cut costs that can go toward paying off your debt,” said Michael Hershfield, CEO and founder of Accrue Savings, a company that provides digital wallets that reward saving. “Use your debit card and attempt to stick to a budget. This can help you get an understanding and a feeling of your spending.”
Take the debt snowball or avalanche approach
Making the minimum payment on each of your cards and adding a monthly payments to the card with the highest interest rate is known as the debt avalanche strategy. When you pay off that card, you will add the entire amount you were paying toward it to the minimum payment due on the card with the next-highest interest rate. You will continue in this manner until every card is paid off.
Much the same strategy is employed in the debt snowball method, but it prioritizes easy wins by paying off the accounts with the lowest balances first rather than by interest rate.
Use a consolidation loan or credit card debt transfer
A cheap interest rate consolidation loan or a credit card with an introductory 0% APR balance transfer offer can be available to you if your credit is good.
Any of these debt consolidation choices can assist you in paying down your bill at a lower interest rate, or, if a card offers 0% APR, none at all. Just be sure you take any possible costs into account along with how affordable your new repayment schedule is.
Think about a budget for debt management
See a credit counsellor if your credit card debt is out of control and your credit score isn’t in excellent shape. They could be able to place you on a debt management program that can lower your interest rates and monthly payments.
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After you pay the agency each month, it will divide the funds among your creditors. With this choice, you must deactivate your accounts, and there are small monthly and upfront costs. It can, however, be a preferable option to bankruptcy or attempting to pay off the debt.
Look for a charity that is connected to the Financial Counseling Association of America or the National Foundation for Credit Counseling to be sure you are dealing with a respectable organization. A debt management plan should not be confused with debt settlement, which is a more dangerous service provided by for-profit businesses and will probably lower your credit score and maybe bury you even further in debt.
