Many American households carry a substantial amount of debt. There is mortgage debt, student debt, and automobile debt to contend with, but these categories of debt 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 on cards with high interest rates, cutting into your monthly budget and ability to retire this type of debt.
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:
- People that carry credit card balances have more debt than the total average.
- Alaska has the highest average credit card debt.
- Though overall, consumer debt dipped during the recession, it is steadily climbing currently.
- Men under 35 have the most credit card debt, while women over 65 have the least.
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. 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. This Federal Reserve data is the most up to date government information on credit card debt. The difference between average credit card debt reported by the Census Bureau in 2011 and the Federal Reserve in 2013 point to an overall increase.
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 is now back on a rising trend 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, after $11 billion had been added in 2013, indicating a clear trend in expanding credit card debt.
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, pointing up the higher cost of living in Alaska. Connecticut, North Carolina and District of Columbia round out the top five states with the highest level of credit card debt, averaging $5,555 in those states.
Residents of Iowa enjoy the nation's lowest average credit card debt of just $3,885, a bit more than half of the Alaska figure. 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 close at $3,100.
Credit Card Debt by Gender
One of the most important statistics on credit card debt is based on gender. Men carry more credit card debt than women. It's clear that as consumer spenders, men are more likely to reach for the card, where women will consider the long-term ramifications of using plastic for purchases. The Census Bureau based these statistics on male versus female householders. Men come in with an overall average credit card debt of $7,000 while women homeowners are much lower at about $5,400.
Debt by Gender
Average Credit Card Debt by Age
The age of card holders has a bearing on how much debt they carry on the card. Those in the middle of life, from their mid-30s to mid-60s, carry the highest balance on cards averaging around $4,000. These groups are at the peak of their earning power, but also have heavy responsibilities such as 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 are adverse to consumer debt, 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|
|HOUSEHOLD NET WORTH:Negative or zero||Average Credit Card Debt:5,000|
|HOUSEHOLD NET WORTH:$1 to $4,999||Average Credit Card Debt:1,820|
|HOUSEHOLD NET WORTH:$5,000 to $9,999||Average Credit Card Debt:2,000|
|HOUSEHOLD NET WORTH:$10,000 to $24,999||Average Credit Card Debt:3,000|
|HOUSEHOLD NET WORTH:$25,000 to $49,999||Average Credit Card Debt:3,025|
|HOUSEHOLD NET WORTH:$50,000 to $99,999||Average Credit Card Debt:3,000|
|HOUSEHOLD NET WORTH:$100,000 to $249,999||Average Credit Card Debt:3,500|
|HOUSEHOLD NET WORTH:$250,000 to $499,999||Average Credit Card Debt:3,500|
|HOUSEHOLD NET WORTH:$500,000 and over||Average Credit Card Debt: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, mostly fixed-rate, fixed-term loans.
The economy has enjoyed a relatively robust period from 2013 to the present. Overall credit card debt has forged ahead in this 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 recently, and this points to further increases coming in overall levels of credit card debt. While disposable income grows, it has not kept pace with increased costs in areas like food and medical expenses, leaving more room for expansion of credit card debt.
What Can You About Credit Card Debt?
If you have credit card debt, it 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. 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 popular priced 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. And do you still need an old-school landline?
Continue by looking at any monthly debits to your checking account. Who is making a monthly draw from your account, and do your need this service? Cut them off. If it's hard to cease the monthly debit, close your checking account and open a new one.
Keep an eye out for opportunities to cut expenses from your life. Shop for clothes on sale, buy cheaper brands at discounters and check out the thrift shops, which carry some very elegant pieces. Take an inventory of your collected stuff. Why not sell that vintage guitar or those silver age comic books on Ebay? Consider that a Saturday morning yard sale might bring in several hundred dollars and upwards.
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
The other side of the coin to cutting costs is 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 a raise at work. 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 easier and put a smile on your face.
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 term, say 3 to 5 years, and a fixed interest rate. 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 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% balanace 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.