What’s Behind Rising Credit Card Debt? The financial expert intervenes.

SALT LAKE CITY – After a sharp decline in 2020, credit card debt is at its highest level in 40 years according to the latest report from the Federal Reserve. Why is this number increasing and how do we fight it?

Focus on credit card debt

Ted Rossman, Senior Industry Analyst at Bankrate.com, joined KSL NewsRadio’s Dave and Dujanovic (Dave Noriega and Debbie Dujanovic) to explain what’s to blame for rising debt and how we can combat it.

“Why has credit card debt increased so much in just one month?” Debbie asked.

“Inflation is certainly a big part of it. I would also note a few more glass half-full angles on this, that it’s usually reported as unpaid balances, not necessarily distinguishing who pays in full and who doesn’t. doesn’t,” Rossman said.

According to the Federal Reserve, only 45% of US cardholders pay off their card balance each month. Here is an overview of Fed card payment numbers:

  • 45% always pay their card balance in full each month;
  • 27% wear a balance most of the time;
  • 21% have a balance from time to time; and
  • 6% have worn a balance just once in the past year, as reported by The Street.

Rossman said the average credit card debt is $5,525. If the cardholder only pays the minimum payment, it will take 16 years to pay off the debt to zero. In the meantime, the cardholder will pay $6,400 in interest.

“So it’s really significant. This is where we want to find a way to pay it back as soon as possible,” he said.

“Do we have any idea how much of this is frivolous spending or buying for needs versus needs?” Dave asked.

Rossman said low-income households use credit cards to meet family needs. These include gas and groceries. High-income households use credit cards for needs such as travel, he said.

“There is something psychological in it. Maybe you use your debit card for everyday things like gas and groceries and you use credit for the big stuff like vacations,” Rossman said.

20% rise in credit card debt in the United States

According to Investopedia:

  • The Federal Reserve recently released its monthly credit report for April and found that during that month, revolving credit grew 20% year-over-year. This totaled $1.103 trillion and surpassed the pre-pandemic high of $1.098 trillion.
  • Credit card balances also hit a record high, with the Federal Reserve Bank of New York expecting further increases in the coming quarters.
  • Total household debt, which combines credit card balances, auto loans, student loans and mortgage debt, hit a record $15.84 trillion. Meanwhile, household debt as a percentage of income rose to 9.3% at the end of 2021, from a pandemic-era low of 8.4% recorded at the start of 2021.

Assume your debt today

Rossman had several tips for cardholders in debt, including getting a zero-balance transfer card.

“You can pause that clock of interest for up to 21 months with cards like the Wells Fargo Reflect or the Citi Simplicity or the Citi Diamond Preferred.”

Another way to reduce debt is to get into a side business, which Debbie said she did.

“I took a second temporary job for three months and managed to pay off a credit card. It was around $2,500, and it hung over my head for years. I paid for it in three months and it was awesome,” she said.

Rossman also suggested applying for a low-rate personal loan to pay off credit card debt or nonprofit credit counseling agencies such as Money Management International.

“If you have good credit, maybe you can get 6% for five years. It certainly beats 16% for 16 years,” he said.

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Dave & Dujanovic can be heard weekdays from 9 a.m. to noon. on KSL NewsRadio. Users can find the show on the KSL NewsRadio website and app, as well as Apple Podcasts and Google Play.