Americans pile up credit card debt and it can be costly: NPR

This image shows debit and credit cards arranged on a desk on April 6, 2020 in Arlington, Va. Americans are using their credit cards more to pay for everyday expenses at a time when interest rates are rising.

Olivier Douliery/AFP via Getty Images

hide caption

change caption

Olivier Douliery/AFP via Getty Images

This image shows debit and credit cards arranged on a desk on April 6, 2020 in Arlington, Va. Americans are using their credit cards more to pay for everyday expenses at a time when interest rates are rising.

Olivier Douliery/AFP via Getty Images

More Americans are leaning on their credit cards in the face of rising prices. And as interest rates continue to rise, that debt becomes a lot more expensive.

The average credit card user carried a balance of $5,474 last fall, according to TransUnion13% more than in 2021.

That marks a turnaround from the first year of the pandemic, when many Americans were able to pay off credit card debt thanks to generous government aid payments and limited travel and entertainment spending.

As credit card balances rise again, they can cast a long shadow over household finances.

Here’s what you need to know about mounting credit card debt and what you can do about it.

It’s the everyday things people charge for

With inflation outpacing incomes, more people are relying on credit cards to cover their daily expenses.

“Contrary to popular belief, it’s usually not a vacation or a shopping spree,” said Bankrate senior analyst Ted Rossman. “It’s usually something pretty practical that gets you into credit card debt. But unfortunately it’s easy to get in and hard to get out.”

Mel Murphy’s rent consumed two-thirds of her income as a part-time custodian in Spokane, Washington. That left little room for maneuver when unexpected expenses turned up.

“Every time my minibus suddenly needed $300 in work, or I had an older cat, and every time he needed emergency surgery, it went on the credit card,” says Murphy.

Fewer and fewer people pay off their balance every month

The share of credit card users with balance has increased from 39% a year ago to 46%, according to Bank rate.

“Nearly half of cardholders are in debt from month to month,” says Rossman. “And that debt is as expensive as ever.”

Lower-income cardholders are more likely to carry a balance. But even among people earning $100,000 a year or more, 37% don’t pay their credit card bill in full each month.

Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington, D.C., on Dec. 14, 2022. The Fed has been aggressively raising interest rates to fight inflation, which is raising interest rates of all kinds across the economy.

Alex Wong/Getty Images

hide caption

change caption

Alex Wong/Getty Images

Federal Reserve Chairman Jerome Powell speaks at a news conference in Washington, D.C., on Dec. 14, 2022. The Fed has been aggressively raising interest rates to fight inflation, which is raising interest rates of all kinds across the economy.

Alex Wong/Getty Images

Transferring card balances is expensive

The average interest rate on credit card debt has risen to nearly 20%, from just over 16% at the beginning of last year. That’s the largest one-year increase in the four decades that Bankrate has tracked.

The Federal Reserve has aggressively raised interest rates in an effort to curb inflation. Every time the central bank raises rates, so does the cost of maintaining a balance on your credit card.

But when Bankrate did a survey last month, they found that more than 4 in 10 credit card holders don’t even know what their interest rate is.

“You don’t really notice it on the monthly overview,” says Rossman. “Your minimum payment might change by just a few dollars a month. But the problem is when you stretch it out over a decade and a half, you really start to feel it.”

There are ways to lower your credit costs

Of course, the best thing to do if you find yourself with a large credit card debt is to pay it off as soon as possible. But if you have a debt to bear, there are ways to save.

Some card issuers offer zero percent interest on balance transfers, but only for a limited time. Alternatively, it may make sense to take out a low-interest personal loan or consult a not-for-profit credit advisor about steps to reduce your interest expense.

Don’t chase credit card rewards if you’re in debt

Instead of looking for a card with the lowest interest rate, many people prioritize rewards, such as cash back. But if you carry a balance, it could be a mistake.

“If you’re in debt, I’d say forget about rewards altogether. Because there’s no point paying 20% ​​interest to get 1 or 2 or even 5% back or airline miles,” says Rossman. “You have to put that interest first and worry about rewards later, once you pay it off.”