Charlie Wise from TransUnion underscores the situation, stating, “Consumers are just spending more,” emphasizing that the lower inflation rate doesn’t equate to a decrease in prices.
Households are under considerable strain, evidenced by an increasing number of cardholders carrying debt month to month or falling behind on payments.
Both the New York Fed and TransUnion report a surge in credit card delinquency rates, with serious delinquencies (90 days or more past due) reaching the highest level since 2009.
Ted Rossman, Bankrate’s senior industry analyst, provides a silver lining, suggesting that paying credit card bills in full every month is beneficial, allowing cardholders to enjoy cash back and travel rewards without accruing interest.
The key decision point lies in whether to carry a balance; credit cards prove to be an expensive way to borrow money, with an average interest rate of 20.74%, a record high.
Making minimum payments towards the average credit card balance at this rate would take over 17 years to pay off, incurring a cost of more than $9,000 in interest, according to Rossman’s calculations.
Subprime borrowers, categorized with a credit score of 600 or below, opened a staggering 20.1 million new credit accounts in Q4 2023, propelled partly by millennials seeking additional liquidity, as stated by Wise.
Millennials, grappling with high student loan debt and the housing affordability crisis, frequently turn to credit cards as a more accessible form of borrowing.
Wise notes that rising rent and the inability to afford a home contribute significantly to this trend among millennials.
Ted Rossman’s top tip is to sign up for a 0% balance transfer credit card, allowing individuals to consolidate high-cost debt onto a new card with no interest for a specific period, ranging from 12 to 21 months.
Borrowers may also consider refinancing into a lower-interest personal loan, which, on average, remains under 12%, still lower than current credit card averages.
For those not opting for a balance transfer or personal loan, negotiating with the card issuer for a lower annual percentage rate is a viable option.
Rossman emphasizes the critical role of discipline and strategic financial planning in managing credit card debt effectively.
He suggests creating a budget and cutting unnecessary expenses to free up funds for debt repayment.
Additionally, individuals should prioritize paying off high-interest debts first to minimize long-term interest costs.
Seeking financial advice or credit counseling services can provide valuable insights and assistance in navigating challenging financial situations.
While the surge in credit card balances and increasing debt levels pose significant concerns, actively managing personal finances and exploring alternative strategies can empower individuals to navigate the complex landscape of credit card debt.
Educating oneself about financial literacy and making informed decisions regarding spending, borrowing, and debt repayment is crucial in achieving long-term financial stability.
Rossman concludes, “It’s essential for individuals to be proactive in understanding their financial situation, exploring available resources, and taking steps to secure their financial well-being.”
By adopting a disciplined approach to personal finance, individuals can not only weather the current challenges but also build a foundation for a more secure and prosperous financial future.