Americans are racking up high credit card debt – how it’s affecting you

As the cost of living rises, many consumers are finding that their paychecks don’t stretch as far as they once did. To keep afloat, many turn to credit cards to cover living expenses.

However, credit card addiction does not come without consequences: The Federal Reserve Bank of New York recently released a study showing that credit card debt has risen to $1.14 trillion in the US.

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TheStreet’s Conway Gittens sat down with Ted Rossman, senior industry analyst at Bankrate, to discuss what rising credit card debt means for Americans. While that might not be as alarming as it sounds, Rossman sees a difference between those who pay off their balances every month and those who carry debt that earns interest month after month.

Paying off high interest credit card debt should be your number one priority

Rossman points out that 50 percent of those with credit card debt pay off their balances every month. These balances are included in the more than $1 trillion in household credit card debt, so the total balance may not be as dire as it first appears.

“Half of cardholders pay their bills in full each month,” he explained. “So even though they’re counted among those balances, they don’t really have debt. Not in the sense that I’m paying interest every month.”

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However, the situation deserves more attention for the other half of Americans who carry high-interest debt.

“The average credit card, by the way, charges about 21%. So if you’re in the interest-paying half, it’s a huge deal for you,” Rossman said.

“These credit card balance numbers also point to an expanding economy — more credit card use, less cash,” he added. “It’s not bad at all. What’s bad is carrying around $6,000 in credit card debt—the average statistic—at 21% interest for years. The minimum payments in that average scenario keep you in debt for 18 years and cost you about $9,500 in interest.”

He recommends that those in a financial situation get ahead of the snowball debt and create a restructured payment plan.

“So if you’re among those with credit card debt, you need to prioritize, pay down, get a 0% balance transfer card, or work with a reputable nonprofit credit counselor,” Rossman advised .

A man is seen sitting at a desk thinking about his credit card debt. Bankrate’s Ted Rossman advises credit card holders to find a way to pay off their credit card debt balance from month to month.

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There may not be a debt crisis, but consumers should keep a close eye on their finances

When asked if consumers should be concerned about the national credit card debt topping $1 trillion, Rossman offered some reassurance.

“It’s not a cause for concern,” he said. “I know that sounds like a big number and it is. Remember though – it reflects the balances. So half of those are paid off each month in full, and in many ways we would expect credit card balances to grow over time.”

“Usually it takes something exceptional for them to go down, like the COVID pandemic or the Great Recession. Otherwise, credit card balances tend to increase steadily over time.”

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Almost half (47%) of all consumers agree that their finances have had a negative impact on their mental health, with many consumers noting that rising consumer prices are contributing to their debt. Rossman agrees that while the microcredit landscape is in good shape, individuals are feeling considerable financial stress.

“Overall, the credit card market is in good shape,” he said. “Delinquencies and overall debt are up, but lenders feel pretty good and credit continues to flow freely. The problem is at the margins, especially for people with lower incomes and credit scores. But the macro outlook is more positive.”

Rossman advises credit card holders to find a way to pay off their credit card debt balance from month to month.

“We don’t want to minimize this pain at the individual level — it’s significant for consumers,” he explained. “You want to be one of the deal makers. You want to be someone who uses a card for rewards and convenience, but pays it off at the end of the month.”

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