In 2023, Americans played a vital role in preventing a recession by spending actively and driving economic growth. However, this positive trend has a downside, as revealed by a recent Bankrate survey.
Nearly half of consumers now report carrying credit card debt, highlighting the flip side of the economic boost.
According to Bankrate, a whopping 49% of credit card users now maintain a balance from one month to the next, marking a significant 10 percentage point increase from 2021.
The data also reveals that among those carrying balances, 58%—equivalent to 56 million individuals—have been in debt for at least one year.
The considerable number of Americans accumulating credit card debt doesn’t necessarily indicate reckless spending.
According to respondents surveyed by Bankrate, the primary reason for not paying off their credit cards every month is dealing with emergencies or unexpected expenses, such as medical bills and car repairs. Additionally, many individuals use their credit cards to manage day-to-day expenses.
Record Credit Card Debt and Soaring Interest Rates
The national credit card debt has soared to a record $1.08 trillion, accompanied by an average interest rate of 21%.
This marks the highest point recorded by the Federal Reserve in almost three decades of tracking. Notably, certain retail cards now impose rates surpassing 30%.
This surge in debt coincides with rising credit card rates and persistent inflation, which erodes households’ purchasing power.
In 2023, the average credit card annual percentage rate reached a record 20.74%, marking a significant increase of 4.44 percentage points from early 2022, as reported by Bankrate.
Ted Rossman Emphasized the Role of Inflation Behind Growing Debt
According to Bankrate senior industry analyst Ted Rossman, inflation exacerbates an ongoing trend where more individuals carry debt for extended durations, signaling a concerning shift in the financial landscape.
Bankrate derived its conclusions from a November survey encompassing 2,350 adults, with nearly 1,800 being credit cardholders and 873 reporting that they carry a balance on their accounts.
Rossman suggests several steps for consumers to begin addressing their credit card debt. His foremost advice is to acquire a 0% interest balance transfer card, providing a grace period of 21 months with no additional interest charges.
“It provides a valuable runway to make real progress without being burdened by interest,” Rossman highlighted.
He also emphasized the importance of seeking guidance from a non-profit credit counselor or reaching out to credit issuers directly to explore more favorable terms, like flexible payment due dates or temporary repayment pauses.
According to Rossman, inquiring about accommodations is worthwhile as some credit issuers may be willing to make adjustments.
Consider embracing a side hustle, selling unused belongings, or streamlining your budget to free up funds for tackling high-interest credit card debt.
Rossman emphasizes the significance of prioritizing credit card debt, given its substantial impact compared to other forms of debt.
LendingTree’s Survey Report
The LendingTree Credit Card Confidence Index, a monthly survey by the personal finance site conducted since 2018, hit an all-time low of 51% in December.
From a nationally representative survey involving 1,514 cardholders, only 51% expressed confidence in their ability to pay off their credit card balance for the current month. This marks a decline from November when the Confidence Index stood at 58%.
While credit card confidence appears to be on the decline, numerous other industry metrics are experiencing an upward trend.
Matt Schulz, Chief Credit Analyst at LendingTree, remarked,
“It was hard to imagine that growing debt, rising inflation, and sky-high interest rates weren’t eventually going to take a toll.”