We all know there are good reasons to pay off our credit card debt as quickly as possible. For one thing, high credit card debt creates a lot of anxiety. In fact, credit card debt is among the most stressful types of debt for Americans.
Reducing what you owe on your credit card allows you to spend your money on things you need and enjoy — as opposed to interest charges.
It adds to your overall financial security and long-term goals. And it will help your financial future, removing potential hurdles that a ballooning credit card balance can have on your ability to obtain loans for big-ticket items like a car or new home.
Despite the numerous reasons to keep your credit card balance in check, a new study conducted by Clever Real Estate has exposed America’s credit card debt problem.
Credit Card Debt Is a Problem for Nearly 1 in 2 Americans
According to the Clever study, nearly half (46%) of credit card users are carrying credit card debt, month-over-month. This is creating an excessive debt load that’s only going to get worse if, as expected, interest rates rise in the coming years.
Growing balances can become overly burdensome. The survey found most Americans don’t believe they’ll be able to pay off their credit cards within a year. That’s especially concerning when it comes to low-income families who are becoming trapped in debt cycles.
The cycle of a rising balance due just to interest on the credit card isn’t just an issue for low-income families. Here’s what else the survey found about America’s credit card debt problem:
- 28% of credit card users have missed a monthly payment
- 38% of Americans with credit card debt say it has prevented them from making a major life purchase
- Nearly one in three Americans could not pay $2,000 out of pocket for an immediate emergency
- 72% of credit card debt holders carry at least $1,000 in debt
The Federal Reserve found that credit card debt reached $870 billion at the end of last year, and credit card balances in 2018 also matched the peak of 2008.
A recent Bankrate survey found 29% of Americans have more credit card debt than emergency savings. Compare that with 2015, when about 22% said they had more credit card debt.
With credit card APR jumping to 17.64% and the Federal Reserve raising the federal funds rate to 2.5%, Americans need to start paying off their credit card debt yesterday.
There is a silver lining in our survey. It found that millennials (those between age 18-34) are more financially responsible than their older counterparts. They were significantly more likely (62% to 48%) to pay off their credit card balances each month than older generations.
While the survey found that millennials are more financially responsible than older Americans, they are also less knowledgeable about interest rates.
One out of every four millennial believes that credit cards have lower interest than mortgages. Just as bad, another 25% aren’t sure. Compare that with Baby Boomers: 90% know mortgage interest rates are lower than credit card interest rates.
However, it should be noted our report found that 41% of all cardholders don’t know the interest rate on their credit cards. In other words, they don’t know how much they’re paying in compound interest every month.
Millennials are also twice as likely to say student loans are the most stressful type of debt than older Americans, who see credit card debt as their main concern. This is the only generation who views student loans as the most stressful type of debt.
Not understanding and managing credit card debt can have a big impact on anyone. Younger Americans are already feeling the negative consequences. About 41% of millennials with credit card debt say it has prevented them from making a major life purchase like buying a home.
The Overall Impact
Our survey suggests growing credit card debt is having a major impact on Americans trust in credit card companies.
Nearly half of credit card users don’t believe that credit card companies are honest about their fees or interest rates. Consumers are also not shy about saying what they don’t like about credit card companies.
Digging into the CFPB’s consumer database, complaints against retail store credit cards went from 2,652 in 2017 to 4,064 in 2018. Complaints against credit card debt collectors are also growing (30% year-over-year between 2017 and 2018).
Unfortunately for credit card debt holders, compound interest works both ways. Only 30% of Americans believe they can pay off their credit card debt within a year.
Takeaways From Credit Card Survey
The survey findings suggest that Americans’ are as dependent on their credit cards as ever. The growing debt carried by cardholders month-to-month — even year-to-year — will have a big impact on their financial futures.
Whether you’re a baby boomer or millennial, managing credit card debt is vital for all Americans. The less you pay in credit card interest, fees, and fines, the more money you’ll have left over each month for other purchases.
More importantly, the money that isn’t going to payoff your credit card can also be saved for future investments.
Tommy O’Shaughnessy is a Research Analyst at Clever Real Estate, a platform that connects home buyers and sellers with top agents. Tommy creates surveys, gathers data, and analyzes trends in housing, real estate, and personal finance markets.