Credit card debt is a significant problem in the United States. According to the Consumer Federation of America, 83% of all households have at least one credit card. In addition, the Federal Reserve Bank of Boston estimates that more than 1.1 billion credit cards are held by U.S. consumers (that means the average American has 3.84 credit cards).
And with credit card annual percentage rates hovering close to 20%, on average, and with a total credit card debt that just hit a record $930.6 billion at the end of 2022, we might be setting ourselves up for a few problems.
Consider these statistics released by TransUnion:
- Over the last year, there was an 18.5% spike in the total credit card debt incurred.
- The average balance rose to $5,805 per card (which means the average American has more than $22k in credit card debt).
- Assuming a 20% interest rate, if someone stopped new purchases and paid the minimum required payments toward just one average credit card balance, it would take more than 17 years to pay off the debt and cost you more than $8,213 in interest.
That is a problem. And because it is not difficult for credit card use to quickly get out of hand, regularly buying on credit may give you a case of the “credit card blues.”
Warning Signs
The following behavior may indicate behavior associated with the credit card blues:
- You use credit cards to pay for basic needs, like food and gas.
- You can only pay the minimum balance due on your cards each month.
- You are paying above-average interest rates and cannot find lower rates because of your credit score.
- You are unable to contribute to a savings account or an IRA.
- You are unaware of how much you charge or how much you owe.
- You lose sleep over your mounting debt.
- You transfer balances frequently to avoid credit card payments.
If any of these sound familiar, it is crucial that you take action now and create a plan to pay down your debt to avoid making the problem even worse.
Getting Back on Your Feet
First, make and maintain a worksheet to track your credit card use. You may do this by hand, using colored markers for different creditors, or on a computer spreadsheet. Be sure to include the names of your creditors, the last date of each payment, the annual interest rates, the minimum monthly payments, and the total amounts due.
Here are five simple steps to help you bounce back from debt:
- Create a financial budget. Once you look at your expenses and figure out where all your money is going, you can look for areas where you can cut back, even temporarily, to free up some of your cash for credit card payments.
- Set up a repayment schedule. Start paying the debts with the highest finance charges first and stick with it.
- Hide the Plastic. At least until your present debts are under control.
- Reduce your finance charges. Search for cards with the lowest possible rates.
- Avoid using credit card company checks. Do not use these checks that come directly to you in the mail. The value of each check you use will be added to your existing debt – plus any extra transaction fees!
Safety Precautions
Of course, there are times when using a credit card is unavoidable. However, keep your cards safe, and separate them from your purse or wallet to help prevent theft. Further, do not give your credit card number out on the telephone, particularly if you did not place the call. Shred all carbon receipts and unsolicited or unwanted credit cards or applications.
Remember, your credit card debt will always increase if you are charging more than you are paying. Use your credit cards only for essential purchases. Pay the balance quickly to avoid additional interest or late payments.
A meeting with your financial advisor can help you develop strategies for improving your spending and saving habits to get debt free – and stay that way.