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.
What is Credit Card Debt?
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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How Much Credit Card Debt Does the Average American Have?
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.
Average Credit Card Debt by State
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:
- Alaska: $6,617
- Connecticut: $6,040
- Virginia: $5,992
- New Jersey: $5,978
- Maryland: $5,977
States with the lowest average credit card debt:
- Iowa: $4,289
- Wisconsin: $4,376
- Kentucky: $4,521
- Idaho: $4,582
- Mississippi: $4,587
Credit Card Debt by Generation
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:
- Generation Z (18-23 years old): $1,963
- Millennials (24-39): $4,322
- Generation X (40-55): $7,155
- Baby Boomers (56-74): $6,043
- Silent Generation (75+): $3,177
How Does Credit Card Debt Affect You?
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 Score
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.
Cash Flow
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.
Mental Health
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.
How to Resolve Credit Card Debt
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.
Pay Off Debt While Building Savings
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.
Credit Card Debt Consolidation
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:
- Personal loans: Credit card debt loans are installment loans you use to get out of high-interest credit card debt. You use the proceeds of the loan to pay off all of your credit cards. You’re then able to make fixed payments to pay off your debt without accruing more interest. Installment loans generally have lower interest rates and a fixed repayment timeline than credit cards.
- Credit card balance transfers: A credit card balance transfer is where you move your existing balances to a completely new card. Many credit card issuers offer cards specifically for balance transfers. They usually come with an attractive initial interest rate to reduce how much interest you’re accruing, such as 0% interest for the first year. (Be sure to watch out for transfer fees.)
Commit to a Debt Payoff Plan
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:
- Debt snowball: This strategy works by paying off your smallest credit card balance first. You then pay your next-smallest off and work your way up. The small victories of paying off a balance help keep you motivated.
- Debt avalanche: A debt avalanche is where you pay off your debt starting with the account with the highest interest rate. Once it’s paid off, you can focus on the next-highest interest rate.
The Bottom Line
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.
