It appears that with inflation rising over the past two years, it is becoming increasingly difficult for consumers to keep their heads above water financially.
According to a YouGov survey for CreditCards.com in late 2022, about three-quarters (72 percent) of those with credit card debt increased last year.
The majority of US consumers (70 percent of adults) have some form of personal debt, with credit card debt being the most common form (41 percent have credit card debt).
Credit card debt is on the rise
The rise in credit card debt is not surprising given rising inflation and costs, which have pushed up the prices of goods and services, and pushed floating credit card rates up to about 20 percent at the time of writing, along with the federal one. An increase in the reserve rate.
Nearly half of those (48 percent) who have increased their credit card debt in the past year point to rising spending that accompanies inflation as the culprit, while 34 percent say it’s due to rising interest rates. And 24% blame the decline in their household incomes for this.
Not surprisingly, 75 percent of low-income households (annual income less than $50,000) and middle-income households (annual income between $50,000 and $99,999) increased their debt last year, compared with 65 percent of higher-income households. income. (annual income over $100,000).
Surprisingly, 49 percent of middle-income households are more likely to have credit card debt, compared to 42 percent of higher-income households and 39 percent of low-income households.
There is also a generational gap regarding credit card debt: older people are more likely to have credit card debt. Gen Z is the least likely to carry this type of debt (18 percent), while baby boomers and Gen X cohorts are the most likely (49 percent, respectively, for each of these groups). Millennials are in between: 38% of them have credit card debt.
Consumers are actively developing a debt repayment strategy
It appears that the majority of cardholders (92 percent) are actively looking for ways to get rid of credit card debt. Paying more than the required monthly minimum payment was the most popular method of paying off debt among cardholders (61 percent). Generationally, this method has been attractive to older consumers who are likely to have higher disposable income: 69 percent of Baby Boomers and 61 percent of Gen Xers are more likely to choose this path. Millennials and Generation Z were comparatively less likely, at 53% and 48%, respectively.
“If you have a lower credit score or just want more help, reputable non-profit advisory agencies like Money Management International can often put together debt management plans at a 6 percent interest rate over five to five years.” advises Ted Rossman, senior industry analyst at CreditCards.com.
He adds: “Don’t forget the basics, too. Look for ways to increase your income and cut costs to speed up the debt repayment process.”
Cardholders seem to be doing just that: 43% want to get out of debt by cutting spending, and 18% are earning extra income by taking on part-time jobs or working longer hours.
The younger generation is more likely to seek additional income: 33% of Generation Z and 30% of Millennials already do so. On the other hand, only 7 percent of Baby Boomers and 21 percent of Gen Xers are trying to raise their income to pay off their debt.
Those with credit card debt also need to decide which debt payments to prioritize and pay off first. One plan is to tackle the smallest debts first to gain momentum and get more excited when you intrude on your debt. This so-called snowball method is popular with 17 percent of debtors.
Others (15 percent) choose to pay off the debt with the highest interest rates first, also known as the avalanche method.
How long will it take to pay off the debt?
There is also a note of optimism about debt repayment as more debtors believe they can pay off their credit card debt quickly. Forty percent of credit card debtors expect to be able to pay the full amount within a year, compared to 30 percent of respondents in a 2021 Bankrate survey. And 79 percent of those with credit card debt represented in the current survey plan to pay off the debt within five years, compared to 60 percent in the 2021 survey.
Other forms of personal financial debt for Americans include mortgages (27 percent), auto loans and leasing (24 percent), student loans (16 percent), medical debt (14 percent), personal loans (13 percent), mortgage loans. or lines of credit (7 percent) and payday loans (5 percent).
Given all these forms of personal financial debt they incur, 66% of consumers expect to be debt-free within ten years, and 18% believe it will take them more than ten years to reach that goal. Another 9% do not know how long it will take them to get out of debt, and 8% expect to die in debt.
bottom line
Consumers increased their credit card debt last year, hit by the double whammy of inflation and rising credit card interest rates. However, most people with debt are actively developing a strategy to pay it off. While older generations are more likely to pay more than their minimum payments, younger generations are more likely to cut back on spending or look for additional sources of income.
While debt can seem overwhelming, Rossman says, there are several ways to deal with it. First, debtors can get a credit card with a balance transfer that offers 0 percent APR, which will help them avoid high interest rates for two years. And if you have a good credit history, another option worth considering is a low-interest personal loan that will allow you to consolidate your debt. Debtors can also contact a non-profit credit counseling agency to create a plan for them.
Methodology
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise noted, are provided by YouGov Plc. The total sample size was 2,392 US adults, of whom 1,002 have credit card debt. The fieldwork was conducted between December 28, 2022 and January 3, 2023. The survey was conducted online and meets strict quality standards. The numbers have been weighted and are representative of all American adults over the age of 18.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
