As parents spend big on back-to-school expenses and Americans pay their summer vacation bills, the Federal Reserve Bank of New York presented us with an eye-opening number: Americans will have $1.14 trillion in credit card debt after the second quarter of 2024, more than ever before.
“The fact that credit card balances increased by a few points in the second quarter is pretty typical,” said Bankrate analyst Ted Rossman, adding that the 48% increase since the first quarter of 2021 is significant.
Bankrate also found that more credit card users (50%) carry debt from month to month. The result: 60% of indebted borrowers have been in credit card debt for at least a year.
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“The fact that more people are carrying more expensive debt for longer periods of time clearly shows the impact of high inflation and high interest rates,” Rossman said.
Economists expect the Federal Reserve to begin cutting interest rates in September, but Rossman warns that a rate cut will not provide immediate relief.
“Let’s say the Fed cuts interest rates by half a percentage point next month,” he said, “then the average credit card rate will drop from 20.7% to 20.2%. The difference is not that big.”
According to TransUnion, the average credit card debt per borrower is $6,218. Rossman hopes borrowers will spend more money on credit card debt each month than the minimum payment.
“If you make the minimum payments on the average balance at the average interest rate, you’ll be in debt for 18 years,” he said, “and you’ll end up paying about $9,300 in interest,” based on that average debt level.
Assuming you don’t increase debt, “you don’t want to dig the hole any deeper,” Rossman said.
Consumers juggling multiple types of debt can try a few things. Here are some tips from Bankrate:
- Prioritize credit card debt with the highest interest rate.
- Look for an interest-free balance transfer promotion.
- Take on a part-time job.
- Consider seeking credit counseling from a reputable organization.
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