Many American households carry a substantial amount of debt. There is mortgage debt, student debt, and automobile debt to contend with, but these payments deliver some benefit in exchange for the monthly payment, at least in theory. Then there is credit card debt. Unpaid credit card balances often come with a high-interest rate attached and can wreak havoc on personal finances and budgets. It's tempting to label credit card debt the result of irresponsible spending, but it's not that simple.
Many economic factors contribute to the increasing amount of debt being carried by households across the country. The cost of living continues to outpace income growth. As a rule of thumb, it should be a priority to pay down high-interest debt, including credit card debt. As interest rates rise, so does the amount of interest you'll pay on outstanding balances, cutting into your monthly budget and reducing your ability to retire this type of debt.
51% of cardholders carry revolving debt on their cards some, most, or all of the time.
In This Guide
- Average Credit Card Debt - Key Findings
- Average Credit Card Debt in America
- Consumer Debt Grows with Economic Recovery
- Average Credit Card Debt by State & Region
- Average Credit Card Debt by Gender
- Average Credit Card Debt by Age
- Effect of Income and Net Worth on Credit Card Debt
- What Can You Do About Credit Card Debt?
- What Can You Do Right Now?
Average Credit Card Debt - Key Findings
Let's look at the economic factors at play in the rising level of credit card debt in America, then we'll move on to strategies for paying down and retiring credit card debt. Here are some of the key things we found:
- Over half of Americans believe that their wages are not keeping up with the cost of living, according to a 2014 survey by the Pew Research Center.
- People who carry credit card balances have more overall debt than the total average.
- Although consumer debt dipped following the 2008 recession, it has risen steadily since 2012.
- Men under 35 have the most credit card debt, while women over 65 have the least.
- Millennials have a lower credit card debt to savings ratio compared to Generation X.
The takeaway here is that Americans in general are still struggling to control unsecured debt, despite a low unemployment rate and a strong economic recovery.
Average Credit Card Debt in America
The U.S. Census Bureau reported an average household credit card debt of $3,500, based on their most recent survey in 2011. Interestingly, only 38.3% of households carry debt on their credit cards, indicating that those who do carry a card balance owe substantially more than the overall household average.
Median Value of Debt for Households 2011
Data released in the 2013 Survey of Consumer Finances by the U.S. Federal Reserve reports a higher figure of $5,700 in average household credit card debt. The difference between average credit card debt reported by the Census Bureau in 2011 and the Federal Reserve in 2013 points to an overall increase.
At the same time, the Fed reported a shrinking percentage of homes are carrying debt on credit card accounts, going from 39.4% of households in 2010 to 38.1% of households in 2013. Newer data, however, released in the Reserve's 2015 Report on the Economic Well-Being of U.S. Households shows that 51% of cardholders carry revolving debt on their cards some, most, or all of the time.
Percentage of Households Holding Debt 2013
Consumer Debt Grows with Economic Recovery
Average household debt fell for a five-year period following the 2008 economic downturn but has been on a steady rise since, as disposable personal income once again increases. With the economy rebounding, student loans and auto loans lead the resurgence in consumer debt, followed by credit card debt. In 2014, credit card debt expanded rapidly and has continued to grow from there, according to the Federal Reserve. Interestingly, the Fed states that consumer debt still trails growth in disposable income.
The table below tracks the growth of consumer debt including credit cards, auto loans, and student loans. A hefty $31 billion in credit card debt was added in 2014, nearly triple the $11 billion racked up in 2013. The trend is concerning, particularly considering that experts like Suze Orman continue to advise consumers on the urgency of paying off this type of debt as quickly as possible.
Annual Changes in Consumer Credit
Average Credit Card Debt by State & Region
The average credit card debt varies greatly from state to state. Residents of Alaska owe the most with an average of $6,910. Colorado comes in second with average credit card debt at $5,625, a whopping $1,285 difference which highlights the higher cost of living in Alaska. Connecticut, North Carolina, and District of Columbia round out the top five regions with the highest level of credit card debt, averaging $5,555 each.
Residents of Iowa enjoy the nation's lowest average credit card debt of just $3,885, just over half that of Alaskans. North Dakota, South Dakota, and Nebraska also are parked at the low end of the credit card debt scale. The map below shows average credit card debt by state.
Credit Card Debt by State
The U.S. Census Bureau also tracks credit card debt by region, with the Northeast and West showing the highest average credit card debt at $4,000. The south enjoys the lowest average credit card debt as a region with a $3,000 average, with the Midwest not far off at $3,100.
Average Credit Card Debt by Gender
One of the most interesting credit card debt statistics revolves around gender. Data from the U.S. Census Bureau indicates that men carry more credit card debt than women. This conclusion is based upon male versus female heads-of-household. Men come in with an overall average credit card debt of $7,000 while women homeowners carry about $5,400.
Debt by Gender
We can't jump to conclusions just yet about this gender gap, however. A 2015 survey carried out by debt settlement firm National Debt Relief paints a somewhat contradictory picture of the gender disparity when it comes to debt. The survey found that while 63% of women ages 18 - 24 carry at least some credit card debt, only 36% of their same-age male counterparts do so. A similar dynamic exists in the 55 - 64 age group, with 66% of females in this demographic laboring under credit card debt compared to only 33% of the men.
What do these two data sets mean? In the big picture, it could simply indicate an unusual discrepancy in the debt behaviors of these two specific age groups, while men still represent the larger portion of credit card debt in the general population as a whole. Ultimately these numbers are just snapshots in time in the ever-morphing economic environment.
Average Credit Card Debt by Age
The age of cardholders also has a bearing on how much debt they carry. Those in the middle of life, from their mid-30s to mid-60s, carry the highest balance, averaging around $4,000. These groups are at the peak of their earning power, however they also bear heavy financial responsibilities. These may include the care and education of children, maintaining the proper wardrobe for their professional lives, as well as cars, phones, and more.
Those younger than 35 and older than 65 carry less debt on credit cards. Millennials prefer debit cards to credit cards, believing it helps them budget their funds. They tend to be more averse to consumer debt than their elders, according to Time.com.
Average Credit Card Debt by Age
Effect of Income and Net Worth on Credit Card Debt
Those with lower incomes have lower outstanding credit card debt, with the lowest 20% monthly income bracket owing $2,180. The highest 20% of earners have an average credit card debt of around $5,000.
When average household credit card debt is broken down by net worth, a similar pattern emerges, with one exception. Households with an average net worth between $1 and $4,999 owe an average of $1,820. The richest category of households with a net worth of $500,000 and up owe an average of about $4,000. The exception is that households with zero or a negative net worth owe an average of around $5,000 on their credit card accounts.
Monthly Income & Net Worth
|HOUSEHOLD NET WORTH||Average Credit Card Debt|
|Negative or zero||5,000|
|$1 to $4,999||1,820|
|$5,000 to $9,999||2,000|
|$10,000 to $24,999||3,000|
|$25,000 to $49,999||3,025|
|$50,000 to $99,999||3,000|
|$100,000 to $249,999||3,500|
|$250,000 to $499,999||3,500|
|$500,000 and over||4,000|
Credit card debt is on the rise in the United States. According to the Federal Reserve, the total consumer debt on revolving credit accounts is $935.6 billion as of December 2015. Most of this is credit card debt. The other main categories of consumer indebtedness, auto loans and student loans, are non-revolving credit consisting mostly of fixed-rate, fixed-term loans.
While the Federal Reserve threatens to put the brakes on the party with interest rate hikes, they aim to curb inflation, not to douse economic expansion.
The economy has enjoyed a relatively robust period from 2013 to the present. Overall credit card debt has forged ahead during this time period. While the Federal Reserve threatens to put the brakes on the party with interest rate hikes, they aim to curb inflation, not to douse economic expansion. The Fed cites that disposable income growth has outpaced the demand for consumer credit in recent years. Despite this trend in increased disposable income, increased costs in areas like food and medical expenses are leaving consumers vulnerable to the need to use credit to make ends meet.
What Can You Do About Credit Card Debt?
The burden of credit card debt can keep you awake at night, wondering how to control spending and pay off your balance. Visions of rising interest rates do not make for sweet dreams.
The best strategy is to look for ways to spend less and make more, in the service of becoming debt free. Take an inventory of your income and expenses. Create a realistic budget for what you can afford each month, including items like entertainment. Bottom line, budget as much as you can each month towards paying down credit card balances.
Cut Down on Spending
Ask yourself, what can I do without? Examine your daily spending patterns. Here are some steps you can take to reallocate funds to pay down your debt:
- Do you stop for a $4 coffee drink on the way to work every day? Why not enjoy a coffee at home?
- Are you spending on upscale microbrews or wines? Indulge yourself in a survey of more economical brands.
- Look at monthly expenses like cable subscriptions. If you have Netflix, you can drop the cable.
- How much do you pay for your smartphone plan each month? Go to a simpler plan.
- Do you still need an old-school landline? This is an easy area to shave a few bucks off your monthly expenses.
- Look at monthly debits to your checking account. Who is making a monthly draw from your account, and do your need this service?
- Shop for clothes on sale, buy cheaper brands at discounters and check out the thrift shops.
- Take an inventory of your collected stuff. Why not sell that vintage guitar or those silver age comic books on eBay?
- Consider having a yard sale - this can bring in several hundred dollars.
You can also take more drastic measures to make an even bigger dent in that debt. Take a hard look at your biggest monthly expenses such as your car. Can you switch to a cheaper car, or give it up altogether? At the very least, you can change your car insurance to a higher deductible plan. Try public transit, and give up purchasing gasoline. Likewise, consider downsizing your living space. Go for a cheaper apartment or downsize to a smaller home. These frugal moves actually make you a richer person and give you a leg up on your ability to pay down debt.
Consider other big life expenses such as weddings, having children, and vacations. Some of these can be postponed until you are debt free, and others can be downsized. Instead of going to Italy this year, how about some good old hiking and camping? Can the children go to a state college or university instead of a private institution? Some states offer free or inexpensive community college.
Boost Repayment with Extra Income
Once you've whittled your expenses down as much as possible, consider ways to increase your income. Can you take an evening or weekend job until your credit card debt is gone? Is there an extra room in the house or garage to rent? Do you have a skill that lends itself to freelancing? And when was the last time you got a raise? Now is the perfect time to ask for one. It never hurts to conduct a search for a higher paying job either.
From time to time, many people come into an unexpected windfall via a gift, tax refund, or inheritance. Use this money to pay off that credit card debt. You'll breathe much easier than if you blow it all on a luxury item.
The point is, with a bit of creativity and an eye toward cutting expenses and increasing income, you can melt that credit card debt away faster that you may have thought.
It's important to know exactly how much credit card debt you have, and what interest rates you are paying on it. Pay down the highest interest rate accounts first, and stay with it until you are debt free. It goes without saying to avoid using the cards for anything that you can't pay out of your cash flow.
What Can You Do Right Now?
You have a variety of options if you are struggling. If budgeting isn't enough, consider these options to simplify paying off credit card debt:
- A personal loan with a decent rate is a solid way to refinance your credit card debts and combine them into one monthly payment. Personal loans tend to have lower interest rates than credit cards, so if you are already behind and accruing interest or if you are struggling to make payments, this is a good option. You can consolidate such debt into a personal loan with a fixed interest rate over a fixed term of three to five years. This is a good choice is you can qualify for a loan with a lower interest rate than your credit cards, and it's a great hedge against expected rate hikes from the Federal Reserve. In considering this option, conduct a due diligence check on any lender to ensure they are legitimate. Check to see if there is a loan generation fee, and read the loan agreement carefully before signing.
- Debt consolidation is a possible option if your credit score is too low to qualify for a loan. These companies will help combine your debts into one and some help reduce your rates by negotiating with creditors. This will affect your credit score, at least in the short term, so if you are about to make a life change or a big purchase that requires good credit, you should wait to use a consolidation company.
- A 0% balance transfer card can help you move your credit card debts to one card that charges no interest for a limited time. This can also affect your credit a little in the short term.
Having a high amount of credit card debt can seem overwhelming, however with a solid plan and dedication to regular payments you can dig your way out and experience the peace of mind that financial freedom brings.
For more of our in-depth data studies, take a look at the best states to retire in the US.