Credit card debt has achieved yet another milestone, reaching a fresh high. As per the Federal Reserve Bank of New York’s report released on Tuesday, Americans presently carry a staggering $1.13 trillion in credit card debt.
According to a quarterly credit industry insights report by TransUnion, balances surged by 10% compared to the previous year. The average balance per consumer has soared to $6,360, marking another historic record.
Charlie Wise, TransUnion’s senior vice president of global research and consulting, emphasized, “Consumers are just spending more. Even though the inflation rate is down, that doesn’t mean prices are coming down.”
Despite the ongoing increase, prices are now on the upswing at a less rapid rate compared to previous trends.
The consumer price index, a pivotal gauge of inflation, has steadily declined from its peak of 9.1% during the pandemic in June 2022 to 3.4% by December 2023.
Concurrently, households are exhibiting signs of financial pressure, with a growing number of credit card users either accumulating debt from month to month or falling behind on payments.
A joint study by the New York Fed and TransUnion revealed a significant rise in credit card delinquency rates across the spectrum. The New York Fed reported a more than 50% surge in credit card delinquencies throughout 2023.
Also, TransUnion’s findings indicate that “serious delinquencies,” defined as payments overdue by 90 days or more, have reached their highest level since 2009.
“Consumers are struggling with their payments,” Wise said. “I think we will continue to see those delinquencies tick up.”
Ted Rossman, a senior industry analyst at Bankrate, points out, “It’s not all bad news.” For cardholders who consistently pay their bill in full each month, there are considerable benefits in the form of cashback and travel rewards, all without accruing interest.
“The big fork in the road is whether or not you carry a balance,” he added.
Sure, I’ll rewrite the article without shortening it:
In this scenario, credit cards emerge as one of the most costly methods for borrowing funds. As per Bankrate, the average credit card carries an exceptionally high-interest rate of 20.74%.
With interest rates exceeding 20%, adhering to minimum payments on an average credit card balance could extend your repayment period to over 17 years. Moreover, it could accrue more than $9,000 in interest expenses, as calculated by Rossman.
Consumers frequently opt for credit cards, partly due to their greater accessibility compared to other loan options.
In the fourth quarter of 2023, there was an increase in new credit accounts by 20.1 million, driven partly by subprime borrowers seeking extra financial flexibility, as per Wise. Subprime typically denotes individuals with a credit score of 600 or lower, according to TransUnion.
A significant portion of this demographic comprises millennials, noted Wise, who are grappling with substantial levels of student loan debt and the housing affordability crunch.
“If you can’t afford to buy and your rent keeps increasing, that’s not a very favorable situation,” remarked Wise.
Managing credit card debt
Rossman said, “My favorite tip is to sign up for a 0% balance transfer credit card,”.
According to him, there are cards available that offer periods of 12, 15, or even 21 months with no interest on transferred balances, and “these allow you to consolidate your high-cost debt onto a new card that won’t charge interest for up to 21 months, in some cases.”
Borrowers might also have the option to refinance into a personal loan with a lower interest rate. While these rates have increased recently, hovering just under 12% on average, they remain considerably lower than the current average for credit cards.
Alternatively, one can inquire with their card issuer about obtaining a lower annual percentage rate (APR).
A LendingTree report indicates that 76% of individuals who requested a lower interest rate on their credit card within the last year were successful in securing one.
