Nearly half, 47 percent, of credit cardholders are currently carrying debt from month to month, according to a Bankrate report, an increase from 46 percent of cardholders carrying a debt balance month to month in December 2022 and 39 percent in December 2021.
It’s not just that more people have credit card debt, the amount of debt is breaking records too. Between Q1 and Q3 2023, American consumers added $45 billion to their outstanding credit card debt balances, which means for the first time ever, American consumers owe more than $1 trillion in credit card debt, according to the Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data.
To be precise, total outstanding balances stand at $1.03 trillion as credit card debt has risen consistently for the past seven consecutive quarters.
“The situation is noticeably worse than it was a few years ago,” said Ted Rossman, senior industry analyst at Bankrate. “More people are carrying more debt and at very high interest rates.”
Credit cards are the most prevalent form of household debt, according to the New York Federal Reserve, and credit card usage continues to become even more widespread as there are 70 million more credit card accounts open now than there were in 2019, before the pandemic.
Not only are more consumers turning to credit cards, but more credit cardholders are carrying a balance month to month. In 2023, 60 percent, or 54 million, of those with credit card debt have been carrying that credit card debt for a year or longer. While those carrying debt for a year or more have not increased since August 2022, it’s up from 50 percent in September 2021.
The main reason cited for carrying credit card debt according to the Bankrate survey? Emergency expenses.
Of those battling credit card debt, 43 percent say that it’s because of an unexpected or emergency expense they had to tackle (down from 46 percent for August 2022). Car repairs and medical bills were each cited by 10 percent of the respondents, followed by home repairs (8 percent) and other unexpected expenses (about 14 percent).
People also took on credit card debt to tackle their everyday expenses, with 25 percent citing this reason, up from 24 percent last August.
“While emergency expenses are the prime culprit, consumers are also hard pressed to chip away at the debt in today’s high interest rate environment,” Rossman said. “Credit card debt is easy to get into and hard to get out of. Contrary to popular belief, it’s usually very practical things that push people into debt.”
The reality is if you’re living paycheck-to-paycheck, you’re just one emergency expense away from incurring debt. And as it turns out, emergency expenses happen more frequently than you may have realized.
Nearly half (46 percent) of U.S. consumers have faced at least one unexpected expense in the last 90 days, according to joint research conducted by LendingClub Corporation and PYMNTS.com.
Of those who experienced an unexpected expense in the last 90 days, 56 percent had to pay more than $400, paying an average of $1,400 per emergency expense.
Unfortunately, more than two-thirds of Americans, 68 percent, reported in early 2023 that they are worried they wouldn’t be able to cover their living expenses for even one month if they suddenly lost their primary source of income, according to Bankrate’s yearly emergency savings report.
According to the Bankrate report, nearly half of U.S. adults (49 percent) reported they experienced financial challenges in the last year that lessened their ability to put away money in their savings accounts.
Another shocking finding from Bankrate’s report? More than one-third, 36 percent, of people reported they have more credit card debt than they have in their emergency savings accounts.
Nearly Half of Credit Cardholders Are Carrying Debt
One lesson personal finance educators often stress is that if you struggle to afford your bills while earning a modest income, your financial struggles won’t necessarily disappear once you start earning more due to a variety of factors, including lifestyle inflation.
As the Bankrate report found, higher income households were not immune from carrying a credit card debt balance month to month, finding that 72 percent of respondents with annual household incomes of $100,000 and more have been in debt for at least a year.
For households earning an income between $80,000 and $99,999, 70 percent of respondents reported carrying debt for at least a year; for households earning incomes between $50,000 and $79,999, 63 percent of respondents reported carrying a balance for at least a year; and those earning annual incomes under $50,000, 53 percent of respondents reported carrying a balance for a year or more.
Breaking it down by age group, more millennials have carried their debt for a year or more (68 percent) than other age groups. About 62 percent of Generation X, the so-called “sandwich generation,” carried debt for a year or more, followed by 59 percent of baby boomers and 39 percent of Gen Zers who have had credit card debt for at least a year.
However, the Bankrate survey found that more Gen Xers (53 percent) carry a credit card balance month to month than any other age group. Gen Zers were close behind, with 52 percent carrying a balance month to month, 49 percent of millennials, and 41 percent of baby boomers.
Even before credit card interest rates hit an all-time high in 2023, credit card debt was challenging to pay off, especially if you were only making the minimum payments.
If you’re faced with a large amount of credit card debt, it’s easy to send off the minimum payment and hope that, eventually, the total amount due won’t seem quite so overwhelming.
But not so fast. While paying the minimum will keep your account in good standing, it isn’t moving you closer to debt freedom like you think it might be.
As Rossman pointed out, even if you make minimum payments on an average credit card debt balance at an average interest rate, it’s still likely to take decades to pay your way out of debt – and that’s if you stop adding debt to your card. This means that in order to get out of credit card debt, you’ll have to make paying off your debt a priority and stop using your credit cards.
For example, say you have a credit card with a balance of $10,000, an interest rate of 18 percent and the credit card company requires a minimum payment equal to 4 percent of the total balance.
Of the $400 total payment due the first month, a whopping $150 will go to pay interest.
When all is said and done, the card will take 162 months to pay off and over that time, $5,873.50 will be paid in interest charges alone.
Yes, you read that right. Over 50 percent of the total balance will be paid in interest to the credit card company. Not to mention it will take over 13 years to reach a zero balance!
“Attack this debt and get credit cards working for you rather than the other way around,” Rossman said.
DebtWave’s credit calculators can help you see how much you are working just to make your monthly minimum payments and how much you could save by making a fixed monthly payment instead of the minimum payment.
What are some ways to pay off credit card debt?
1. Contact a reputable nonprofit credit counseling agency, such as DebtWave Credit Counseling, Inc.
Since 2001, DebtWave Credit Counseling has worked closely with thousands of Americans to help them pay off credit card debt, create a savings strategy, and learn to implement healthy personal finance habits into their daily lives.
As a 501(c)3 nonprofit organization, we offer a free confidential budget analysis with a certified credit counselor to help consumers like you develop a workable budget for your financial situation, as well as share advice on how to better manage your finances and reduce debt over time.
We also offer financial education programs and a Debt Management Program to help you pay off your credit card debt in three-to-five years by working with your creditors directly to reduce your interest rates.
2. Generate extra income with a side hustle
Reducing one’s expenses often goes hand-in-hand with erasing credit card debt. However, for most people, there is a limit on how much one can reduce their monthly expenses.
So, what’s to be done if merely reducing expenses isn’t enough to achieve your financial goals?
Happily, there’s a bit of good news we can share: there is no limit to how much money you can earn.
It may seem daunting at first, especially if you are already working a full-time job on top of your daily responsibilities, but a growing number of U.S. consumers are turning to alternative sources of income, including side hustles, to supplement their income from their regular full-time employment in order to improve their financial situation.
Consumers struggling to pay their bills or afford their pre-inflation financial lifestyle are most likely to report they had a side hustle because their current income is not enough (46 percent).
Popular Side Hustles include:
- Gig Economy (Instacart, UberEats, Door Dash)
- Virtual Assistant
- Sell Arts & Crafts (Etsy, Amazon)
- Pet Sitting / Dog Walker
3. Reduce unnecessary expenses
Have you ever canceled a subscription service and then realized that you never really used that service anyway?
When tracking expenses or setting up a budget, people tend to find things that they pay for every month that they wouldn’t miss if they canceled. Saving money every month by not paying for something that you rarely use can go a long way in keeping a budget balanced and helping you pay off debt.
Although some savings may seem small, in aggregate, they provide additional relief in your budget or can be used to pay off your debt faster.
4. Sell items you no longer need
Chances are that if you’ve been to a thrift store, yard sale, estate sale, or even browsed through your own closet, you’ve likely wondered at least once how much an item would sell for online or through for-sale apps like LetGo or OfferUp.
To generate more income, you can always sell items you no longer need. To do this, you can create an account with one of the numerous online sales portals and gauge interest in your for-sale items. While fees will likely claim a bite of your profit (for example, eBay takes about 10 percent of the final price, including shipping), it’s a quick way to find out if you’ve got stuff that others are willing to buy.
But even with a 10 percent fee to the app platform you’re using, some people find financial success from selling unused items, like Kim Kardashian, for example.
When she was 16, Kim discovered how her keen eye for fashion trends could become a profitable business. “I was on a strict budget, so if I wanted to buy something, I had to sell something,” Kim Kardashian recalled.
“When I was younger, I worked in my dad’s office. When I was there, I discovered eBay and I loved shopping. I had to be on a budget. I didn’t have credit cards. How do I figure out how to make this a business?” she said. “I remember I bought these Manolo Blahnik shoes that were $700. [My dad] let me buy five pairs. I had to pay him back plus interest. I sold every pair on eBay for $2,500. I became so obsessed with seeing that return, I would sell off the things I wouldn’t be wearing,” Kardashian said.
So how did Kim K. know people were willing to pay $2,500 for a $700 shoe?
“They were these Manolo Blahniks that Jennifer Lopez had worn in her first or second video,” Kardashian explained. “Everyone had to have them. I called at the right time and the girl at the store had five pairs and I took them.”
Kim’s eBay success attracted the attention of some of her celebrity friends, who let Kim organize their closets, share some outdated items, and even share some of the profits with her too.
“Before long, Kim was organizing and cleaning out closets for everyone from Cindy Crawford to Serena Williams, as well as friends like Nicky Hilton and Nicole Richie,” Player Magazine said. “Her clients jokingly tagged her with the moniker, ‘Queen of the Closet Scene.’”
Of course, we’re not saying you need to run out and buy Manolo Blahnik’s to achieve financial success, but the idea is to think out of the box. If you have the storage capacity at your home and can invest in cleaning materials and essential tools, consider refurbishing furniture. People love owning interesting furniture pieces, but hardly anyone is willing to put in the time and effort to do the refurbishing themselves.
You can start small too: check your city’s Craigslist free stuff page or visit yard and estate sales on weekends – with your negotiating skills in tow. Oftentimes, small pieces like coffee tables or nightstands just need a good cleaning-up or tightening of a screw or nail.
Generally, it’s best practice to use eBay to sell rare items and electronics, while Craigslist is handy for popular and hard-to-ship items. For things like clothing or specialty items, apps like LetGo, Poshmark, or ThreadUp might be your best bet.
Of course, any time you interact with strangers online, use precaution. If you aren’t shipping an item to a buyer, arrange to meet up at public places like police stations to complete your transaction.
Trying to break the cycle of being financially dependent on credit cards can be a tough and lonely road.
If you’re looking for some life support, contact DebtWave Credit Counseling, Inc. for a free one-on-one session with a certified credit counselor. Even if the DMP isn’t right for you, you’ll at least have a better idea of where your money is going and have a better understanding of how you can better improve your financial situation.