The average consumer carries $5,947 in credit card debt — the highest level in 10 years

  • As Americans increasingly rely on credit to make ends meet, new reports show some signs of potential trouble ahead.
  • Total credit card debt reached a record $1 trillion in the most recent quarter, the New York Federal Reserve Bank reported Tuesday.
  • And a separate report by TransUnion found that the average balance rose to $5,947, the highest level in 10 years.
  • However, there are opportunities available to cardholders that will provide a “tailwind down the road to debt repayment,” says one expert.

New York Federal Reserve researchers said the increased balances could pose challenges for some borrowers, especially when student loan payments resume this fall.

“We also can’t dismiss the importance of higher interest rates on household borrowing costs,” said John Sedunov, associate professor of finance at Villanova University School of Business. “Goods and services are not only more expensive, but money as well.”

On the heels of another rate hike by the Federal Reserve last month, the average credit card rate is now more than 20% on average, an all-time high.

People don’t finance purchases at 20% because they have other options.

Greg McBride

Chief Financial Analyst at Bankrate

At roughly 20%, if you make the minimum payments toward that average credit card balance, it will take more than 17 years to pay off the debt and cost you more than $8,366 in interest, at the bank rate.

“People are not financing 20% ​​buys because they have other options,” said Greg McBride, chief financial analyst at Bankrate. They do this because it is their only option. “

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worker in a personal savings rate which hovered around 4.3% in June — well below the multi-decade average of around 8.9% — “I think it paints a picture of an economy where inflation has taken a toll on households,” Sedunov said.

Overall, 19 million new credit accounts were opened last quarter, boosted in part by establishment among Generation Z, or adults ages 18 to 25, who gained access to credit cards. TransUnion also found that the total number of credit cards totaled 530.6 million.

“Like the overall population, many Gen Z borrowers face the same financial challenges caused by high interest rates and inflation,” said Michele Ranieri, vice president of U.S. research and advisory at TransUnion. As a result, they take advantage of these available credit products to help them deal with higher expenses.

As the number of credit card accounts in the United States rose, so did late payment cases, the report said. TransUnion defines a late payment as a payment that is 90 days or more late.

“The increase in defaults over the past several quarters is something to watch,” Ranieri added. She said lenders have already begun to restrict access to less experienced credit users.

Chrisannapong Detravivat | moment | Getty Images

“It’s still a huge opportunity to get a 0% balance transfer card,” said McBride. He added that cards that offer 12, 15, or even 21 interest-free months on transferred balances exist, and “If you have credit card debt, this is your first step — to transfer that balance and give yourself a tailwind on your way to paying off the debt.”

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Borrowers may also be able to refinance into a low interest personal loan. Those rates have been up recently, too, but at 10%, on average, they’re still much lower than what you currently have on your credit card.

Otherwise, ask your card issuer for a lower APR. In fact, 76% of people who requested a lower interest rate on their credit card in the past year got one, As reported by LendingTree.

“The fact that card issuers are still willing to offer breaks like this, even in the wake of a year of repeated rate increases, is very good news for cardholders,” said Matt Schulz, senior credit analyst at LendingTree.

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