Americans now owe $1 TRILLION in credit card debt
Americans now owe $1 TRILLION in credit card debt: The average household has a balance of $10,000 with an interest rate of 20%
US credit card debt has passed $1 trillion for the first time, with the average household now owing $10,000.
At the end of 2022, Americans had about $1.2 trillion in credit card debt, according to a WalletHub report appears.
The Federal Reserve estimates a slightly more conservative figure, pushing up the country’s credit card debt $986 billiona steep increase of $250 billion in two years.
With interest rates rising, a new credit card now has an average interest rate of 24 percent, as opposed to 16.65 percent last spring, making paying off a more painful affair.
In contrast, debt plummeted as the pandemic hit and consumer spending fell as restaurants, bars and shops closed.
Credit card balances have hit an all-time high, according to data from the Federal Reserve
The average credit card interest rate is 20.92 percent, an increase since last spring when the average card interest rate was 16.65 percent
Card balances fell from about $850 billion at the start of 2020 to less than $750 billion by spring 2021.
Experts explain that the trend is due to households spending less during lockdowns and receiving stimulus checks used to pay down debt.
“In 2021, we saw people pay off a record amount of debt,” says Jill Gonzalez, senior analyst at WalletHub said Hill.
“People had been saving until 2020, without doing much.”
Debt has since increased as the economy picked up again, and inflation has led the Federal Reserve to launch a campaign of sharp rate hikes.
Credit card debt then increased by $86 billion in the fourth quarter of 2022, the largest increase ever recorded.
“Expenses are really non-stop right now,” Gonzalez explains.
“We once thought of putting things on our credit card like frivolous expenses, or a big purchase, a TV. Due to inflation, people now put their basic necessities, food, housing, on their credit card.’
The number of people transferring a balance from month to month has also increased from 39 percent around this time last year to 46 percent.
With interest rates so high, some borrowers will enter a compound interest cycle that is difficult for them to get out of.
For example, paying off the average $10,000 in credit card debt at an average rate of 24 percent would take until 2030 if you paid off $250 per month.
It would also cost a total of $20,318, more than double the original amount owed.
“It’s hard to build wealth when you’re paying 20 percent interest every month,” said Ted Rossman, a senior industry analyst at Bankrate.com.
New York topped the list of cities with the most credit card debt.
By the end of 2022, the average New York household had $18,525 in credit card balances and the city’s population as a whole owed more than $60 billion.
This was three times more than the next largest lenders in Los Angeles, who collectively owe more than $20 billion, according to Wallet Hub data.