Credit card balances hit another all-time high at $1.023 trillion
Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…
The interesting study
The Federal Reserve just released the official numbers for credit card use through the end of November 2017. Yahoo Finance reviewed the data and talked to credit experts to find out what this means for consumer debt levels this year.
The big result
Credit card use during the Christmas season was notably high, even compared to other holiday shopping seasons. Balances rose 13% in November alone, reaching another all-time high for credit card debt at $1.023 trillion.
The fascinating details
In 2017 NerdWallet found that the average American household carried a balance of $15,654. That’s higher than pre-recession credit card debt levels in 2008. However, the good news is that delinquencies only increased by 0.5% in 2017 to 7.5%. Basically, for every 100 credit card accounts, about 7-8 are past due.
In addition to a lower delinquency rate, Credit Union Times also reported on a CFPB study. It found that many other credit factors are also below pre-recession levels:
- The total available credit line for consumers in the U.S. is now $4 trillion; in 2008, total available credit sat at $4.4 trillion
- New credit card originations are also below pre-recession levels; however, they’ve increased by 50% over the past two years. Originations are the number of new accounts opened.
But the CFPB report also outlines some high-risk indicators, too:
- Average credit card debt increased by 9% in the past two years
- About 169 million consumers had at least one credit card as for July last year
- 60% of credit card accounts are enrolled in online services
- Secured credit cards issued in 2016 was 7% than the previous year; secured credit is generally used by cardholders who have a bad credit score
All of this information begs the question of whether American households are taking on too much debt.
What you can do
“Carrying high debt levels can be a recipe for disaster if the economy takes a turn,” says Gary Herman, President of Consolidated Credit. “It also creates stress on your budget that only leads to more debt.”
Increased credit card use means higher minimum payment requirements. As the monthly payments increase on your credit cards, it leaves less cash flow to cover unexpected expenses. As a result, you charge more, leading to more debt and even higher bills.
“It’s a vicious cycle that only gets worse over time,” Herman explains. “You need to take action to find a solution that breaks the cycle so you can get ahead.”
Typically, this means consolidating credit card debt so you can cut interest charges and pay off the debt faster. Solutions like a debt consolidation loan or debt management program can also cut your monthly payments, giving you more cash flow to build up your emergency savings.
“You decrease the amount of money you must devote to credit card payments,” Herman continues. “This increases cash flow in your budget that you can use to cover unexpected expenses. You can also build emergency savings, so when unexpected expenses come up, you don’t need to rely on credit to cover them. You break the cycle of amassing credit card debt.”
Do you use credit cards to "get by"?
Using credit cards to cover gaps in your budget or unexpected expenses can create a vicious cycle with debt. Learn how a debt management program can help you break that cycle.
[On-screen text] Do you use credit cards to “get by” when you don’t have enough cash?Narrator: People often use credit cards to make ends meet when they have a limited cash flow.[On-screen text] But that can lead to problems with DEBT
Narrator: High interest rates on credit cards can double the cost of items if you’re only paying the minimum amount due each month.
[On-screen text] Renee amassed over $19,000 in credit card debt
Narrator: For Renee, getting by on credit cards during graduate school put her on a treadmill of debt.
[On-screen text] Her credit card interest rates were between 15-20%
Narrator: She was shelling out over $1,200 a month to her creditors, but getting nowhere fast
[On-screen quote from Renee] “I talked to a few companies first. Consolidated Credit stood out because I was still in control of my finances.”
Narrator: Luckily, Renee found Consolidated Credit and enrolled in a debt management program.
[On-screen text] Debt Management Program: Before $1,200 per month; After $500 per month!
Narrator: The program reduced her total monthly payments by almost 60 percent.
[On-screen quote from Renee] “The experience of living without credit cards really changed my mindset. It changed how I budget and spend my money now.”
Narrator: The monthly savings meant she didn’t need credit cards to get by anymore, because her budget was balanced.
[On-screen text] After her interest rates were reduced to 1%, Renee was debt free in 4 years!
Narrator: And she could use part of that monthly savings to save up for a new house. Renee had this to say in closing:
[On-screen quote from Renee] It was a great feeling that I was no longer using credit to get by.
If you feel like you’re barely keeping your head above water, pay your credit cards off. And there’s nothing wrong with asking for help!
“Don’t wait until you start to struggle to keep up with the bills,” Herman encourages. “The earlier you start seeking a solution, the more options you have available. Once you start juggling bills, you can miss payments and damage your credit. That can limit how many options you have available to solve your challenges with debt.”
Need help finding the right solution to pay off credit card debt? Talk to a certified credit counselor for a free evaluation.