If you’re facing credit card debt, it’s good to know that you’re not alone.
Credit card debt is common among Americans. Nearly half of credit card users carry a balance each month.
Let’s take a look at the average credit card debt for a better understanding of how it affects your life—and how to resolve it.
Credit cards are a form of revolving credit. That means you can continue to borrow money up to your credit limit. Once you hit your limit, you’ll need to pay off part or all of your balance to borrow money again.
Credit card debt happens when you carry your balance over to the next payment cycle. Once you carry a balance, your credit card company will start to charge interest on the money you owe.
Credit card interest rates are known for being higher than other types of credit. Some cards charge over 20% interest, depending on your creditworthiness.
It’s easy to get overwhelmed by credit card debt when you start accruing interest.
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According to the latest credit card debt statistics from Experian, the average balance was $5,315 in 2020. That’s a 14% drop from the average debt in 2019.
The COVID-19 pandemic had a lot to do with the decrease. Government stimulus money and other pandemic relief packages helped consumers pay down their credit card bills.
Additionally, more people stayed at home. This meant less credit card spending on things like shopping, dining out, or entertainment.
It’s worth noting that credit card debt looks to be going up again. Data from the Federal Reserve Bank of New York shows that credit card balances rose by $52 billion from Quarter 3 to Quarter 4 of 2021.
This is most likely due to rising inflation, as well as increased spending in American households as pandemic restrictions are lifted.
Where you live can impact your spending. Areas with higher costs of living often see higher average credit card balances than those with lower costs of living.
Research from Experian details the states with the highest and lowest credit card balances.
States with the highest average credit card debt:
States with the lowest average credit card debt:
Age also affects spending habits. Generally, middle-aged people have higher credit card limits and carry higher average balances.
However, younger generations usually have a higher credit utilization rate (how much of your available credit you’re using) despite having lower balances.
Average credit card balances in 2020 by generation:
All types of household debt, such as student loans and auto loans, can affect your finances.
However, credit card debt can affect you very quickly because it’s a revolving debt. With an installment loan like an auto loan, you have a set balance you need to repay and usually a fixed interest rate.
Credit cards, on the other hand, let you continue to spend as long as there’s room in your credit limit. You’ll also continue to accrue interest on any balances you have.
This ongoing debt can affect most aspects of your financial well-being.
Credit cards are a great way to boost your credit score—provided you use them responsibly.
Your credit utilization rate is one part of your credit score. Using too much of your credit—such as maxing out your credit cards—can negatively impact your score.
Even more important is your payment history, which is the biggest factor in your FICO credit score.
If your credit card debt is too overwhelming and you miss monthly payments, your credit score will likely suffer on top of the late fees.
When most of your extra cash is going to pay off credit card bills, you don’t have as much spending money.
When your credit card balances are higher, your overall cash flow suffers. You’ll have less money to put toward savings, such as building an emergency fund or saving for a house.
Credit card debt is stressful. It can take a toll on your mental health, which could lead to expensive mistakes.
If you have multiple credit cards, for example, it could be difficult to manage the different minimum payments and due dates.
The stress of managing your debt causes you to accidentally miss a payment—which only causes more stress.
Credit card debt can also lead to feelings associated with depression, which can impact your mental wellness greatly over time.
So, what should you do if you’re in credit card debt?
The first step is to take a deep breath and don’t panic. There are lots of steps you can take to help reduce your debt.
Many people get into credit card debt when they use their cards to pay for emergencies. The best way to avoid this problem is to build an emergency fund.
It can be tempting to prioritize paying off your debt instead of saving. However, paying down debt while also saving for emergencies could help you avoid debt in the future.
Debt consolidation is the process of taking out a new loan to pay off your existing debt.
Although you’re taking on new debt, the process works if you can get better terms on your new loan.
For example, you might be able to get a loan with a lower interest rate than your credit card.
There are two main methods for consolidating credit card debt:
The most important factor in resolving credit card debt is to make a plan and stick to it.
You might want to try debt payoff strategies, like a debt snowball or debt avalanche:
If you’re one of the many Americans struggling with credit card debt, it’s a good idea to make a plan to pay it off.
Start by looking at how much debt you have and how much you can put toward it each month.
Then be sure to make at least your minimum monthly payments so your accounts stay in good standing.
Before you know it, you'll be able to face your debt head-on, and know you have a plan to handle it.
That peace of mind is priceless, and the first benefit of starting your journey towards financial health.