Credit card debt in the U.S. hit a record at the end of 2023 while high interest rates continue to push the debt balance even higher this year. The Federal Reserve recently reported U.S. credit card debt reached $1.13 trillion in the fourth quarter of 2023, up $143 billion from the year before. According to WalletHub, the total already topped $1.3 trillion by January.
“Context is important,” Bankrate Chief Financial Analyst Greg McBride said. “We’re at a higher level of population than we’ve ever been before. We’ve also seen tremendous inflation.”
When adjusted for inflation, WalletHub calculates total credit card debt is about 10% off its peak, which the country hit in 2008 during the Great Recession. But the CEO said growing balances this year could put the inflation-adjusted record in striking distance.
“We’ve had more people carrying larger balances for a longer period of time, at a time when credit card rates are at a record high,” McBride said. “And oh, by the way, delinquencies are the highest since 2012. So you put that all together, there’s no explaining that away that everything’s fine. Sixty percent of households are living paycheck to paycheck and clearly there everything is not fine.“
There’s typically a lot of shame around credit card debt, but credit card experts say that shame is often misguided.
“There’s definitely this idea that credit card debt is always the result of frivolous spending — you’re shopping, you’re going out, you’re buying stuff you shouldn’t buy that you don’t need,” NerdWallet credit cards expert Sara Rathner said. “The reality for a lot of people is credit cards are what are helping them make it from week to week.”
Higher prices, more debt
A NerdWallet survey revealed that 48% of Americans with revolving credit card debt are charging necessities, like food.
“What’s made this bout of inflation so insidious is that it’s hit hardest on necessities,” McBride said. “Shelter, food, energy costs — even things like automobile insurance.”
Since January 2021, the cost of living has been rising faster than the private sector’s average hourly wage, according to data by the Bureau of Labor Statistics and the Federal Reserve. At the same time, Americans’ personal savings are draining after COVID-19 peaks.
“If you don’t have much of a cushion of savings, you have no buffer between you and credit card debt the next time an unplanned expense arises,” McBride said.
For the second consecutive year, more than a third of Americans say they have more credit card debt than emergency savings. At 36%, Bankrate said it’s the highest percentage since they started asking this question in 2011. Gen Xers and millennials are driving the trend, which McBride said is not surprising.
“Those are the prime years of rising household expenses,” he said. “You’re buying houses, buying cars, raising a family, putting kids through college.”
Gen Z’s credit card debt is growing faster than any other generation. Credit Karma said the average debt balance went up nearly 23% from 2022 to 2023.
“I really feel for the younger generation now that’s just beginning to enter the workforce because it is very hard out there,” Rathner said. “Costs are up, wages are not up as much as costs and interest rates are really high.”
Higher interest rates, more debt
Bankrate reports that 49% of surveyed credit card users carry a balance month to month, up from 39% in 2021. In today’s interest rate environment, getting out from under that debt can seem insurmountable.
“It just becomes another bill that you pay every month,” Rathner said. “That’s really what it looks like for people who are in never-ending credit card debt.”
Take the current average credit card debt of $6,360, according to TransUnion. Without taking on any additional debt, if this person only makes minimum payments of around $174.90 a month, paying the average interest rate of around 21%, they’ll spend more than 25 years paying off the card. And they’ll pay more than $10,000 in interest alone. These calculations come from Bankrate’s minimum payment calculator.
Paying down debt
For those facing crippling credit card debt, experts say a great option to chip away at it is moving that debt to a balance transfer card with a zero-or-low-interest introductory rate. The problem is these cards are hard to come by if the person doesn’t have good or excellent credit.
“Look at contacting a nonprofit credit counseling agency who could really help you with things like budgeting, debt management, those types of things, get you pointed in the right direction,” McBride said.
“It might even mean declaring bankruptcy at some point if you really don’t see a way out of your debt,” Rathner said.
NerdWallet said about a third of Americans who carry a balance month to month believe they’ll be in credit card debt forever.
“Once you get into credit card debt, it is hard to get out,” Rathner said.
