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Credit card debt has topped $1 trillion for the first time on record, according to a recent survey from the Federal Reserve Bank of New York. The latest Quarterly Report on Household Debt and Credit showed an increase in credit card balances by $45 billion to $1.03 trillion, while total household debt reached $17.06 trillion. This data can have significant implications for Americans.
Americans ‘ accumulated debt clearly shows increased reliance on credit cards during the economic downturn. With the cost of living rising, Americans aren’t using credit cards to primarily engage in frivolous consumer spending, but instead, they are paying for basic necessities like food and gas.
Americans are growing concerned as the nation’s mountain of credit card debt skyrocketed. With the federal student loan forbearance set to end this fall, millions may rely on credit even more.
Consumers Are Growing Concerned
More than half of Americans are worried about their ability to pay off their credit card debt this year, according to a Newsweek poll conducted by Redfield & Wilton Strategies.
Nearly 50% of people are carrying debt from month to month, up from 39% a year ago, according to Bankrate.com. According to Bankrate analyst Greg McBride, data also shows more people are falling behind on payments. McBride sees this as evidence of a “K-shaped recovery” from the pandemic, in which the distance between the haves and the have-nots grows.
Impact From The Federal Reserve Bank
The Fed’s interest rate increases are meant to fight inflation, but they’ve also led to higher annual percentage rates (APRs) for people with credit card debt, which means they pay more interest. The Fed announced last Wednesday that it would increase rates by another 25 basis points, the highest level since 2001.
The national average for credit card debt is $5,733, according to TransUnion. That debt comes at a cost when considering the average APR for revolving credit accounts is 24.69%, according to Forbes Advisor’s weekly credit card rates report.
The Problem With Credit Card Debt
High debt levels can lead to reduced economic growth and financial distress for Americans struggling to make ends meet, especially when wages have failed to match inflation.
In a 2023 LendingClub report, 60% of respondents self-reported that they were living paycheck to paycheck. People may have to take two or three jobs to pay back their debt or be forced to declare bankruptcy.
What You Can Do
Financing lifestyles through credit card debt is not sustainable in the long term and can lead to a cycle of debt. Here’s what you can do to improve your financial health.
- Create a budget and track expenses to understand spending habits better.
- Seek professional help from credit counselors or financial advisors to develop a debt management plan.
- Consider debt consolidation or refinancing options to reduce interest rates and simplify payments.
- Practice sound financial habits, such as paying bills on time, avoiding unnecessary expenses and saving money.
- Ask your boss for a raise. If your financial situation is dire, you may need to consider a job switch, additional employment or a side hustle.
- Seek support from family, friends or mental health professionals to manage your financial stress and anxiety.