Nearly half of Americans don’t know how much their credit card debt could cost them, a new survey shows.
That’s because more than 47% of Americans say they don’t know their credit card’s current APR, or annual percentage rate, according to financial services company LendingClub. Being unclear about how much interest your issuer charges can be costly, especially if you’re carrying a balance from month to month.
A credit card’s APR determines the cost of borrowing money and only comes into play if a cardholder does not pay their bill in full each month by determining how much interest they have to pay on the balance. Consumers collectively have a record $1.14 trillion in credit card debt, while APRs are rising due to the flood of Interest rate increaseswhich have pushed interest rates to their highest level in 23 years.
“Credit card debt is at an all-time high, and if you’re not paying off your credit card debt in full every month, which about half of all Americans are doing, you have credit. And that’s not very good credit,” Scott Sanborn, CEO of LendingClub, told CBS MoneyWatch.
LendingClub surveyed more than 1,000 consumers in May to understand their habits and opinions on card usage and debt management.
“Buried at the bottom”
Consumers not knowing how much their credit card debt is costing them is a worrying phenomenon: Many seem unable to easily find and track their APRs, according to LendingClub. The survey also found that about a quarter of Americans don’t know how much credit card debt they have overall or where to find out their interest rate.
“It’s disclosed, but you have to go into your account, look at your statement, and it’s not at the top of the statement — it’s buried in the fine print at the bottom, and that’s a place most people don’t look,” Sanborn said.
Annual percentage rates are also currently averaging 22.76% – a record high. As annual percentage rates rise and consumers spend more on their credit cards without realizing the debt and associated costs, many are risking serious financial difficulties, according to Sanborn.
“Inflation is causing people to increasingly use credit cards, increasing their balances at ever-increasing costs. This causes people to get into trouble when they can’t meet their obligations,” Sanborn explained.
He added: “Once you default on your payments, it will be reported and will have a very big impact on your credit score. Any new debt you incur will cost you even more.”
Demand for clearer communication
According to LendingClub, it is partly the responsibility of lenders to be more transparent with consumers.
“The need for clearer communication from credit card companies is more pressing than ever,” said Mark Elliot, chief customer officer at LendingClub, in a statement. “The real problem is that credit cards are designed to perform better when the cardholder performs worse. Frankly, the cards are stacked against consumers.”
The survey also found that even the tools consumers use to get out of debt and get back on their feet financially are unfamiliar with the terms and conditions.
For example, many consumers who open a 0% interest account or apply for cards with promotional rates are unaware that these rates are temporary. For example, more than 26% of consumers said they did not know that their interest rates would increase after a promotional period ended.
