It’s no surprise that Americans often rely heavily on credit cards to make ends meet. And with a recent period of rampant inflation, it’s equally unsurprising that credit card balances are on the rise.
In the third quarter of 2024, U.S. credit card balances rose by $24 billion, reaching the $1.17 trillion mark — the highest level recorded by the Fed in 20 years.
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It’s also worth noting that consumer debt is on the rise. Mortgage balances hit $12.59 trillion during the third quarter of the year, while auto loan balances reached $1.64 trillion.
On a positive note, there’s been a small improvement in credit card delinquency rates. In the third quarter of 2024, 8.8% of balances became delinquent, versus 9.1% in the previous quarter.
However, U.S. consumers still carry a lot of credit card debt, and given the interest rates associated with credit cards, this can be extremely detrimental to their financial health. So, it’s important to try to break that cycle.
An unsettling trend
Surging inflation and rising costs have forced many consumers deeper into credit card debt. According to TransUnion, the average credit card borrower owed $6,380 in the third quarter of 2024 — up from $6,088 one year ago and $4,869 three years ago.
The number of Americans carrying credit card balances has also increased. As of the same quarter, that number totaled 171.4 million, compared to 168.6 million a year before and 155.7 million in the third quarter of 2021.
It’s not just that Americans are juggling higher levels of debt — many are struggling to pay their bills without it.
A November 2024 survey by Achieve found that 28% of Americans saw their debt increase over the past three months. Among them, 37% said they couldn’t make ends meet without taking on additional debt.
Child-related expenses contributed to the growing debt burden, with 16% of those surveyed citing that as a reason. According to Care.com’s 2024 Cost of Care Report, the average cost of infant daycare rose to $321 per week in 2023, compared to $284 the previous year.
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Breaking the cycle of credit card debt
The problem with credit card debt is twofold. First, the longer you carry a balance (or multiple balances), the more interest you accrue.
Carrying high credit card debt relative to your total credit limit can damage your credit score, making borrowing money even more expensive and trapping you in a terrible cycle.
If you owe a lot of money on your credit cards now, it’s important to take control and plan a debt payoff plan. You certainly have options. One is to cut back on spending or increase your income with a side hustle. Then tackle your existing credit card balances using either the avalanche method or the snowball method.
The avalanche method prioritizes paying off your credit cards with the highest interest rates first, and then working your way down toward your cards with the lowest interest rates. With the snowball method, you’re focusing on your smallest balances first and then moving on to your larger ones.
From a purely financial standpoint, the avalanche method can result in the most savings. But from a psychological standpoint, you may have an easier time with the snowball method, since you’ll see a near-term impact when those smaller debts disappear.
Another option is to consolidate your balances onto a single card with a 0% introductory interest rate. This gives you a break from racking up more interest while you work to reduce the total amount you owe. You can also consolidate your debt into a personal loan, which gives you the benefit of fixed monthly payments until your balance is whittled down to $0. You’re likely to enjoy a lower interest rate on your debt with a personal loan than what your credit cards are charging you, though the rate you qualify for will hinge largely on your credit score.
Finally, if you own a home, you have equity, you can look to consolidate your credit card debt into a home equity loan. You may, depending on your credit score, enjoy an equally or even more competitive interest rate compared to a personal loan.
But be careful, as you’re putting your home on the line. Falling behind on home equity loan payments could lead to foreclosure.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
