Average Credit Card Debt

Average Credit Card Debt

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Average Credit Card Debt

If you’re carrying credit card debt you aren’t alone. As of the beginning of 2015, Americans owed more than $8 billion in credit card debt. The average credit card debt per person is more than $5000 and more than $16,000 per household. Experian, one of the three major credit bureaus, reports the typical consumer has two or more bank credit cards, as well as retail store credit cards.

According to a 2015 Pew Charitable Trust report, eight in 10 Americans carry some form of debt, including mortgages, car loans, unpaid credit card balances, medical bills, legal bills, student loans, or any combination of these loans.

It’s no surprise debt has risen so much over the last few decades. Credit cards can be a blessing when used properly and many even offer benefits when you use them on a regular basis. The key to using credit card effectively is paying off your balance quickly and avoiding carrying large balances over time.

Unfortunately, all too many people do the exact opposite – they’ve accumulated large balances and paying off their cards is an accomplishment far in the future.

The truth is, as helpful as credit cards can be, they can also destroy your life and prevent you from ever reaching financial security.

For many people, the problems begin when they try to live above their means. Credit cards allow them to afford things they would otherwise be unable to afford based on their income. They use credit cards assuming they will eventually earn enough to pay for these items, and in the meantime, they’ll pay the minimum needed on the cards.

Other people use credit cards in emergencies. This is understandable. Most people have had a tight situation when a medical bill, car repair, or household emergency wasn’t in the budget, so they use their credit card to get them through. Though it’s recommended by financial experts everywhere, far too few people have emergency savings available to deal with these unexpected problems and their saving grace, at least temporarily, are their credit cards.

The cost of living versus stagnant earnings has also caused credit card debt to soar. According to Nerdwallet.com, the cost of living has outpaced income growth for more than decade. Median household income has grown less than 30 percent since 2003, but expenses have outpaced that significantly. The cost of medical care alone has increased by 57 percent, and food and beverage prices have gone up 36 percent during that same time period.

Young Adults and Credit Cards

College students and young adults are especially vulnerable to credit card temptations.

It used to be a rarity for college students and new graduates to have much more than their student loan debt when they graduated. A

But now, according to Sallie Mae, more than half of all college students have a credit card. Many of them are meeting their payment obligations, but about a third of them are “maxed out.” They’ve damaged their credit before they’ve barely had an opportunity to use it!

Why are Credit Cards Problematic?

As tempting as it is to pay with plastic, cards are designed to trick you into paying more than the actual cost of an item. If you’re able to pay the balance in full by the end of the month or whatever promotional period of time has been extended, interest isn’t a concern. But if you’re like most people, you carry a balance long-term, which means you’re paying interest long-term. An item that originally cost $100 can end up costing you thousands if you carry the balance long enough.

Some credit cards offer reasonable rates, especially if you have decent credit. The average annual percentage rate for a card is about 14 to 15 percent. However, there are millions of Americans with cards featuring rates of more than 20 percent.

Often, individual store credit cards have the highest interest rates. You’re offered a special discount at the time of purchase when you sign up and pay using a credit card, but over time, this savings and more is paid in interest.

Credit card companies offer all sorts of gimmicks to get you into their credit programs, but rarely are these offers beneficial to you.

Is Credit Card Debt a Problem If I Can Afford It?

Many people assume if they are meeting their minimum payments obligations each month their credit card debt isn’t a problem. After all, they aren’t receiving late fees or calls from creditors. It must be OK, right?

Unfortunately, their presumed financial security can change in an instant.

Not only do you risk a change in income throwing your ability to pay off track, the credit card debt you’re carrying could be damaging your credit. You don’t need to miss payments to have credit card balances damage your credit score.

This is because not only do lenders look at your payment history, they also take into account the amount of credit you have available. Having a decent amount of credit available to you is a good thing, but having a lot of credit balances is not. The amount of credit you have versus the amount you’re using is called your credit utilization ratio and having one that is high can mean your credit score is taking a hit. You might be meeting your payment obligations, but if you are extended to the tip-top of your means, it’s bad news.

So what’s a responsible consumer to do? Having some credit is essential, but having too much can hurt you. Ideally, your balances won’t be more than 30 percent of your available credit and you’ll pay more toward your monthly payment than the minimum amount due.

If you’re struggling with credit card debt or you are being sued for debt, contact us to your options or find out how you can get your credit card debt under control, call us at 1.800.220.4318 to schedule a free consultation.

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