Make Ends Meet: Managing credit card debt

A new study from Clever Real Estate shows about 40% of Americans with credit card debt have been underwater for more than five years.
Published: Oct. 27, 2023 at 9:49 PM EDT
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LOUISVILLE, Ky. (WAVE) - Americans are drowning in credit card debt.

A new study from Clever Real Estate shows about 40% of Americans with credit card debt have been underwater for more than five years. For many Americans credit card debt has become chronic.

More than three in five Americans, which is 61%, are in credit card debt owing an average of $5,875. In addition, 23% say they go deeper into credit card debt every month.

Matt Brannon, a data analyst at Clever Real Estate, believes it is so concerning as inflation gets higher it means people are forced to spend more money on things.

“It is no secret to most Americans that rising prices have taken a huge bite out of their finances,” Brannon said.

To survive, many Americans have turned to their credit cards to get by. For the first time, Americans have collectively eclipsed $1 trillion in credit card debt.

“About 1/4 of credit card users say they go deeper into debt each month,” Brannon said.

The Federal Reserve has done it is best to stabilize the U.S. economy by raising interest rates. That increase impacts interest on everything from your mortgage loans, and your auto loan to even the interest rates on your credit cards.

”There’s good news and bad news,” Brannon said. “So, the good news is that the Federal Reserve’s strategy of raising interest to slow inflation is making progress. The bad news is that the Federal Reserve’s approach has also caused credit card interest rates to swell to an all-time high.”

In a Clever Real Estate survey to learn more about credit card debt, Clever asked credit card users about their balances, spending, and opinions on credit cards. In that survey, Americans ranked credit card debt as the most stressful form of debt.

”37% say credit card debt prevents them from living the life they want,” Brannon said. “That can mean a lot of different things to different people. 22% say they haven’t been able to purchase a home because of credit card debt and 18% say they’ve been prevented from starting a family because of their credit card debt.”

There is an old quote that is applicable when it comes to credit card debt, and it could help save you a lot of grief, “do the math.”

”For example with today’s rates a card user making minimum payments on a $3000 balance it would take nearly ten years to pay that bill,” Brannon said. “In the process of taking ten years, they would spend an extra $4000 in interest. So, you’re taking what was a $3000 debt and turning it into a $7000 debt.”

That just does not add up to a smart move. You end up paying more money for a longer period.

”If you’re in credit card debt the first thing to do is stop spending and create a budget,” Brannon said. “You’re less likely to overspend if you can present yourself with evidence of how much it’s hurting your bottom line.”

Think about putting your credit card away if you can or cutting it up and only spending cash.  You may not want to cancel your credit card because that may hurt your credit.

“There’s plenty of psychological research that goes into the fact that people do spend less when they have to use cash rather than a credit card,” Brannon said. “If you do have debt on more than one card most people prioritize a certain strategy.”

Plan to tackle your debt. Try targeting one card at a time. Focus on the card with the highest interest rate or the one with the smallest amount of debt. Pay more than the minimum, or you can consolidate your debt. Depending on your situation consider a balance transfer card with a low promotional rate over the first year or so.

Try not to be late on paying your credit card bill. That will affect your credit. Call your creditor and ask for a lower interest rate temporarily or waive the interest altogether. They may even give you a forbearance.