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-Editorial
According to data released by the Federal Reserve and analyzed by WalletHub, credit card debt in the United States reached an unprecedented $1.27 trillion in May 2024, marking a 4% increase from last year after adjusting for inflation. With the average credit card APR surpassing last year’s rates, WalletHub projects that credit card debt will climb by an additional $120+ billion by the end of 2024.
The WalletHub survey also reveals several key insights: 46% of Americans are still paying down their credit card balance from last summer, and nearly 1 in 3 people anticipate having more credit card debt by the end of 2024. Nearly 2 in 3 people believe that credit card interest rates above 23% should be illegal, given the current average rate of 22.76%. Additionally, 45% of Americans charge everyday purchases to credit cards they carry debt on, leading to unnecessary interest payments. This financial strain is taking a toll, with nearly 1 in 4 Americans reporting high levels of stress about their credit card debt. Despite this, 4 in 5 people say paying off their credit card debt is a top priority, although nearly 3 in 5 people don’t trust AI for advice on managing their debt.
John Kiernan, WalletHub Editor, commented on the survey’s findings, stating, “Along with things like sunscreen, coolers, and swimsuits, an alarming number of Americans are bringing old credit card debt to the beach with them this summer. Our research shows that people are not eager to give up their vacations to help cut costs. U.S. consumers do want to pay off their credit card debt. They just can’t seem to get any momentum. Four in 5 people say that paying their credit card debt is a top priority, and nearly 1 in 4 people claim to be ‘very stressed’ about what they owe. Yet around one-third of people expect to have more credit card debt by year’s end. At some point, something has to give. Let’s just hope it doesn’t topple the economy when it happens.”
It’s difficult to spend within reason or plan savings if you don’t know how your monthly spending compares to your take-home pay or where that money is going. That is why you should rank-order your expenses – including debt payments, emergency fund contributions, and other savings – and trim the fat if necessary. Most importantly, once you develop your budget, make sure to stick to it, or else you’ll have simply wasted your time. Building an emergency fund is also crucial; with a safety net of cash to fall back on, you won’t be as likely to fall behind on your bills in the event of emergency expenses or unplanned joblessness. Your goal should be to gradually save about a year’s worth of after-tax income.
This might sound counterintuitive, seeing as more credit could mean more debt, but improving your credit standing will have a dramatic impact on the cost of your debt. Reducing the cost of your debt will allow you to pay it off faster. Better credit can also make it easier to find a job or a place to live, both of which impact your bottom line. You can check your latest credit score for free and get personalized credit-improvement tips on WalletHub. Additionally, try the Island Approach, a strategy that involves using a collection of credit cards, each serving a specific purpose. For example, you could transfer your existing debt to a 0% balance transfer credit card to save on finance charges and get out of debt sooner.
Most people with serious credit card debt have multiple balances. If that’s the case for you, try the “avalanche method.” This means putting the majority of your monthly debt payment toward the balance with the highest interest rate and making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process until you’re debt-free. Lastly, evaluate your job situation. In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to explore higher-paying opportunities or consider acquiring new skills to make yourself more marketable. This may require a bit of an investment in yourself, but as long as you get a worthwhile return, it’s money well spent.
