As it turns out 2023 was a rough year financially for many.
Americans now owe a historic $1.13 trillion collectively on their credit cards, according to a new report on household debt from the Federal Reserve Bank of New York. Credit card balances increased by $50 billion, or roughly 5 percent, between October and December 2023 the New York Fed found.
And according to a separate quarterly credit industry insights report from TransUnion, credit card balances jumped 10 percent from a year ago, meaning the average balance per consumer is now $6,360, also a historic record.
A LendingTree analysis of more than 350,000 credit reports found the average unpaid credit card balance was $6,864 in the fourth quarter of 2023.
“Even though $1 trillion in credit card debt is a staggering number to wrap your brain around, the unfortunate truth is that it is only going to keep climbing from here,” said Matt Schulz, chief credit analyst at LendingTree.
“Americans are still struggling with lingering inflation and rising interest rates,” he added, “forcing them to lean on credit cards more and more.”
Although the inflation rate has slowed, with the consumer price index falling gradually from its peak at 9.1 percent in June 2022, to 3.4 percent in December 2023, prices are still rising — particularly when it comes to food, gas, and housing.
A loaf of bread that cost $1.54 in December 2020 cost $2.02 at the end of last year, and a gallon of gas has risen from an average of $2.17 to $3.29 in the same timeframe, according to the Bureau of Labor Statistics. The median rent for a property with up to two bedrooms has jumped from $1,424 at the end of 2020 to $1,713 at the end of last year, according to realtor.com.
Add in that student loan payments have resumed and you can see why consumers are wondering: where has all their money gone?
“Think about a consumer that makes $50,000 a year,” said John Green, Discover’s chief financial officer, at an investor conference in December. “When inflation outpaces your wage growth, they’re making choices in terms of what they’re going to spend, what bill they’re going to pay and what they’re going to frankly put on their table.”
The higher prices combined with high interest rates is leaving many consumers feeling financially strained. Credit card rates were already high but spiked along with the Federal Reserve’s string of 11 rate hikes in the last few years, including four in 2023.
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s decisions to lower or increase interest rates. As the federal funds rate rose, the prime rate did, as well, and credit card rates followed suit.
The average credit card now charges a record high 20.74 percent, according to Bankrate, and it’s unlikely that the Federal Reserve will cut interest rates any time soon.
Americans Owe Over $1 Trillion in Credit Card Debt
Credit cards are one of the most expensive ways to borrow money.
Based on the average credit card interest rate at more than 20 percent, if you made minimum payments toward the average credit card balance, it would take you more than 17 years to pay off the debt and you would pay more than $9,000 in interest.
Because credit cards are one of the most accessible types of loans, they are a popular choice to turn to for consumers. But for those who are unable to pay off their credit card balance each month, credit card debt can be very expensive, shameful, and challenging to pay off.
Edidiong Obot knows this all too well.
“It was somewhere between $30-50,000 in debt and I say that out loud. I’m like ‘Me, oh me. Wow, that’s a lot of money.’” At the advisement of her pastor and her cousin, Obot was encouraged to work with a consumer credit counseling service that offered a debt management program.
Credit counseling agencies that offer DMP’s like DebtWave do the work for you and contact your creditors to set up a single repayment plan to cover all of your credit card debts. The monthly payment is determined by your budget and seeks to have you completely debt-free within three to five years. In some cases, plans may extend beyond five years.
A DMP is also similar to debt consolidation in that a DMP combines multiple debts from multiple creditors into one payment at a reduced interest rate. By significantly reducing interest rates, more of your money goes toward paying off the debt instead of crippling interest fees.
Though similar in name, a debt management program is not the same thing as a debt settlement program. With debt settlement, consumers pay a percentage of what is owed to their creditors, but this often results in a negative impact to your credit score. Consumers on a DMP will pay back everything they owe to their creditors, so the credit score impact is usually neutral if not positive.
Consumer Debt Counseling
Enrolling in a DMP can be a positive thing for your credit because it helps consumers with debt improve the two biggest factors used to calculate credit scores: credit history and credit utilization.
In just three years, Obot paid off her debt and increased her credit score by 60 points. She said her debt journey changed her relationship with money.
“I look at money now as more of like a tool and a resource and not to abuse it,” said Obot. “But you know, how do you be a better steward of it?”
Nonprofit consumer credit counseling is a great way to begin your journey toward financial independence. Whether you’re looking for assistance paying off debt, looking to repair your credit, or learning how to create and utilize a budget to your financial advantage, DebtWave Credit Counseling is here to help.
Credit counseling is a free service offered by nonprofit credit counseling service providers like DebtWave Credit Counseling. Credit counseling is designed to help consumers of all financial backgrounds, avoid bankruptcy and stop living paycheck-to-paycheck.
When you call DebtWave Credit Counseling, Inc. for a free credit counseling session, you’ll speak one-on-one with a certified credit counselor about your finances for about 60 minutes.
During the call, a financial counselor will pull a soft inquiry on your credit, meaning it won’t have a negative impact on your credit score, but will allow your credit counselor to view your liabilities, account statuses, and credit score. Your financial counselor will also inquire about your financial goals, income, expenses, and debts, in order to provide general personal finance advice including advice on budgeting and managing money.
In instances in which a consumer has medical debt, student loans, and/or credit card debt, a financial counselor will share all possible options for paying off that debt. Options financial counselors will discuss for paying off debt include:
- Handling the debt on your own
- Declaring bankruptcy
- Enrolling into a Debt Settlement Program
- Liquidating your assets
- Enrolling into a Debt Management Program
As part of sharing your options for paying off debt, your financial counselor will share an estimated payoff date, as well as estimates for the total money paid, including interest, in order to pay off that debt.
Solutions vary because each consumer will have varying levels of debt, expenses, and financial goals.
Despite how uncomfortable it may be to talk about personal finances, Obot believes this process was an investment in herself.
“Like you take the opportunity to say, ‘Hey, I’m going to look for the resources, and I’m going to invest in myself and what you invest in means that you have prioritized it. You see that it takes the time, the effort and the discipline to see the results over time,” said Obot.
To schedule a complimentary budget analysis with one of DebtWave’s nonprofit certified credit counselors, get started online or call 888-686-4040 to begin your journey toward financial freedom.