December 7, 2023

A credit card is like a power tool. It can be useful or very dangerous, depending on how it’s handled.

Consumers need to keep this in mind following the release of data showing a surge in credit debt, pushing Americans’ collective balance above $1 trillion for the first time.

“One trillion dollars in credit card debt is staggering,” said LendingTree Chief Credit Analyst Matt Schulz. “Unfortunately, it is likely only going to keep growing from here.”

Credit card balances hit $1.03 trillion in the second quarter, up 4.6 percent from $986 billion in the preceding three-month period, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data.

“Compared to other debt categories this quarter, credit card balances saw the most pronounced worsening in performance, following a period of extraordinarily low delinquency rates during the pandemic,” the New York Fed said.

Despite higher interest rates and inflationary pressures, “there is little evidence of widespread financial distress for consumers,” according to the New York Fed Liberty Street Economics blog about the recent data.

However, there’s an important “but” in the data.

“Even as inflation has lingered and interest rates have risen, pushing card debt to record levels, Americans have generally done a good job paying their credit card bills on time,” Schulz said. “That may not last. The resumption of student loan payments will be a huge test for many cardholders.”

Student loan payments will resume in October. Here’s how to prepare.

A report from Bankrate found that 60 percent of those who carry a balance on their credit card — or 54 million Americans — have been in debt for at least a year. Overall, nearly half (47 percent) of credit cardholders have revolving debt, meaning they don’t pay off their balance in full.

Dig down in the Bankrate data and something else comes to light: Households with high incomes are not just using credit but keeping it around like a pet rock.

Bankrate found that 72 percent of cardholders with credit card debt and annual household incomes of $100,000 or more have been in debt for at least a year. The percentage drops to 70 percent for households with credit card debt and incomes between $80,000 and $99,999; 63 percent for people earning between $50,000 and $79,999; and 53 percent for folks making under $50,000.

“More people [are] carrying more debt for longer periods of time,” Ted Rossman, a senior industry analyst at Bankrate, said. “The stats that we see from the New York Fed and elsewhere, they don’t distinguish typically between what’s paid in full at the end of the month and what’s not.”

I work with a lot of consumers trying to get out of debt. And do you know who has the hardest time sticking to a debt payment plan or quitting their addiction to credit?

It’s folks making six-figure salaries.

Emergency expenses are the No. 1 cause of credit card debt for all income groups. But 22 percent of credit card debtors who make at least $100,000 cite vacation and or entertainment expenses as the primary culprit. Among those with incomes ranging from $80,000 to $99,999, 16 percent racked up debt for the same reason. The percentage drops to 10 percent for those in the $50,000 and $79,999 range, and 6 percent for household earning less than $50,000.

In some respects, rising credit card debt is not all bad,” Rossman said.

Consumer spending fuels the economy. And here’s when the power of credit works in consumers’ favor:

  • Credit provides consumer protections not offered when using cash. You can dispute billing errors if your goods and services weren’t delivered as agreed. In such cases, the credit card issuer can act as an advocate.
  • Reward cards allow you to accumulate points toward free stuff, or cashback for purchases.
  • Credit can be more convenient than carrying around a lot of cash, which can be lost or stolen. Plus, cardholders are not liable for unauthorized purchases made with their cards.
  • Use credit well and it can help build up your credit score, which then can land you better rates on other loan products.

“Credit card debt is always a combination of struggle and of confidence,” Schulz said.

But if you overuse credit, you’ll find yourself on the ugly side of this debt.

Here’s when the power of credit works against consumers:

  • The interest rate on credit cards can make purchases expensive if the debt isn’t paid off regularly. “If you’re wrestling with a higher debt load at a higher interest rate, when all of your other costs have gone up, that’s the troublesome thing that traps people in this debt cycle.”
  • Making minimum payments can saddle you with debt for years. Here’s how minimum payment math might work, according to Rossman. Let’s say you have a credit card balance of $5,733. (This is the national average according to TransUnion.) Your credit card interest rate is 20.53 percent (the national average, according to Bankrate). The minimum payment is 1 percent of the balance plus interest each month (with a minimum of $35). Minimum payments vary from issuer to issuer, but that’s a common scenario, Rossman said. Making minimum payments would keep you in debt for 208 months (about 17 years) and cost $8,366 in interest.
  • Falling behind on payments can result in late fees.
  • Late payments and defaults can ruin your credit history.
  • Credit allows you to live above your means.

About 69 percent of U.S. adults had a credit card account in the second quarter of 2023, versus 65 percent in December 2019, according to the New York Fed.

Four reasons a credit-card balance transfer may be a bad idea

If you’re carrying credit card debt, you need to make it a priority to get rid of it. Cut expenses, transfer your balance to a card with a zero percent promotion rate or seek help from a nonprofit credit counseling agency through the National Foundation for Credit Counseling ( Contact your issuer and ask if your interest rate can be lowered.

“What they should be doing is knock down their credit card debt as much as they can,” Schulz said. “Because as expensive as it is now, there’s no reason to think it’s going to get any less expensive any time soon.”

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

Recession-proof your life: The tsunami of economic news is leading consumers, investors and would-be homeowners alike to ask whether a recession is inevitable. Regardless of the answer, there are practical steps you can take to help shield yourself from a worst-case scenario.

Credit card debt: Carrying credit card debt is never good and you should ditch the habit. Here are seven ways to lower your credit card debt in light of the Fed continuing to raise interest rates.

Money moves for life: For a more sweeping overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career to living an abundant life in retirement.

Test Yourself: Do you know where you stand financially? Take our quiz and read advice from Michelle.

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