The Blubber

More Americans are trapped in a credit card debt spiral and fewer are able to pay their bills in full at the end of the month, per CNBC


Americans are increasingly relying on their credit cards, reaching a new record with total card balances at $1.08 trillion, as reported in the latest quarterly update from the Federal Reserve Bank of New York. Over the past two years, credit card balances in the U.S. have surged by 40%, according to Ted Rossman, senior industry analyst at Bankrate.

While many Americans are effectively managing their credit card debt, there are pockets of concern at the household level, as more cardholders are carrying debt from month to month. A report from Bankrate.com indicates that 49% of credit card holders carry debt on at least one card from month to month, up from 46% the previous year. Additionally, 56 million cardholders have been in debt for at least a year.

The current economic environment, with factors such as inflation and rising borrowing costs, may be contributing to this trend. Fed researchers noted in a blog post that these patterns could be a consequence of shifts in lending, overextension, or deeper economic distress associated with higher borrowing costs and price pressures.

One significant factor contributing to the challenge of managing credit card debt is the elevated interest rates, with the average credit card rate exceeding 20%, an all-time high. Despite indications of potential interest rate cuts by the Federal Reserve, credit card annual percentage rates (APRs) are not expected to see significant relief.

Carrying a balance not only impacts credit scores but also subjects individuals to high APRs, making it difficult to break the cycle of revolving debt. With the average credit card rate surpassing 20%, making minimum payments on the average credit card balance of $6,088 could take more than 17 years to pay off, incurring over $9,072 in interest, according to Bankrate calculations.

To address credit card debt, financial experts recommend acknowledging the amount owed and the interest rate, followed by strategies such as using 0% balance transfer cards to facilitate debt repayment.