Credit card debt in the United States surged in the fourth quarter of 2023, hitting $1.13 trillion, marking a $50 billion increase, a substantial 4.6% rise from the previous quarter. This growth is attributed to various factors, such as escalating interest rates and inflation. The upsurge in credit card debt implies that individuals will end up paying more in interest, leaving them with less disposable income to allocate towards essential financial objectives including retirement savings.
Average Credit Card Debt in America
According to the Federal Reserve Bank of New York, Americans collectively carried a substantial debt load of $17.5 trillion in the fourth quarter of 2023, with credit card debt accounting for $1.13 trillion of this figure. Mortgage balances contribute another $12.25 trillion to the total, while auto loans stand at $1.61 trillion.
The average balance per cardholder peaked at an all-time high of $6,360 in the fourth quarter of 2023, as reported by credit bureau TransUnion.
Furthermore, average interest rates on credit cards climbed to an annual percentage rate (APR) of 21.47% in the fourth quarter of 2023, substantially higher than the 15.05% seen in 2019. The elevated interest rates make it more challenging to pay off balances, as a greater portion of the minimum monthly payment goes towards interest rather than reducing the principal.
Credit Card Debt by Age
In terms of credit card debt distribution by age group, Gen X leads with a share of 33.8%. The breakdown for other generations in Q4 2023 is as follows:
- Millennials: 29.4%
- Baby boomers: 26.7%
- Generation Z: 6.3%
- Silent: 3.8%
These figures largely reflect the current life stage and spending habits of each generation.
Regional Variations in Credit Card Debt
When analyzing credit card debt by state, Alaska tops the list with an average credit card debt of $7,863, while Iowa has the lowest at $5,227 based on the latest data from Q3 2023 sourced from credit bureau Experian.
In the top five states with the lowest credit card debt are:
- Wisconsin ($5,242)
- Kentucky ($5,304)
- West Virginia ($5,348)
- Mississippi ($5,415)
Conversely, the top five states (and one district) with the highest credit card debt are:
- Washington, D.C. ($7,548)
- New Jersey ($7,401)
- Connecticut ($7,381)
- Maryland ($7,282)
Strategies for Paying Down Credit Card Debt
When aiming to reduce your credit card debt, there are various methods you can employ:
Debt Snowball Method
The debt snowball approach involves paying off your smallest debt first while making minimum payments on other cards and directing any extra funds towards the smallest debt. Once cleared, move on to the next smallest debt and repeat until all cards are settled.
Debt Avalanche Method
Contrasting the snowball method, the avalanche strategy prioritizes paying off debts with the highest interest rates initially rather than focusing on the smallest debts.
Debt Consolidation Loans
In debt consolidation, a personal loan is used to clear all your credit card balances, with repayment through monthly installments over a fixed period. Personal loans often come with lower interest rates than credit cards, potentially saving money over the loan term.
Balance Transfer Credit Cards
Certain credit card issuers provide cards allowing balance transfers from other cards, often offering low or 0% interest rates for a specified promotional period, like a year. While balance transfer cards may have transfer fees, they can save on interest if you clear the balance before the rate increases.
Addressing the Root Cause of Credit Card Debt
To prevent accruing further credit card debt, it’s essential to identify why you have it in the first place. Many individuals resort to credit cards for everyday expenses when their income falls short of their bills, while others overspend despite lacking immediate repayment capabilities. Establishing a plan to eliminate existing credit card debt and curbing new debt is crucial.
Create a Budget
Listing all expenses offers visibility into monthly obligations. By breaking down your take-home pay to cover fixed and variable expenses, including credit card payments, creating a budget helps manage debts and design a payment strategy.
Try to Negotiate Lower Interest Rates
If maintaining credit card payments proves challenging, engaging with card issuers to potentially reduce interest rates can aid in debt repayment. While lasting interest rate reductions may not be feasible, short-term reductions can assist in clearing balances.
How Does the Average Credit Card Debt in America Compare to Previous Years?
Average credit card debt in the U.S. has continually risen since 2020. In Q4 2020, the average per borrower was $5,103, incrementing to $6,360 by Q4 2023.
Are There Any States With Particularly High or Low Average Credit Card Debt?
Latest data reveals varying average credit card debt across states and Washington, D.C., ranging from the low $5,000s to the high $7,000s. Alaska holds the highest average debt at $7,863, while Iowa records the lowest at $5,227.
What Are the Potential Drawbacks of Consolidating Credit Card Debt With a Personal Loan?
Consolidating credit card debt via a personal loan may temporarily reduce your credit score slightly due to a likely hard inquiry. However, consistent, timely loan repayments should restore your credit score over time. Moreover, keeping paid-off credit card accounts open, even if unused, can benefit your score by influencing credit utilization ratios and average account age.
The Bottom Line
Recent data highlights a significant surge in Americans’ credit card debt, hitting a record high per consumer. Effectively managing and reducing credit card debt is essential for financial stability, enabling individuals to live within their means and allocate resources towards significant financial milestones like retirement and major expenses.