Many carry debt for years; those with more income likelier to hold debt
If you think making more money will solve your credit card woes, think again.
It turns out that Americans who make more than $50,000 a year are more likely than lower-income earners to carry a credit card balance from month to month, according to a new CreditCards.com survey.
The poll also found that Generation Xers and younger baby boomers are the generations most likely to carry a balance, while those who live in the Midwest tend to pay off their cards each month.
The national telephone survey of 2,005 adults offers a look at the credit card habits of Americans almost a decade after the 2008 financial crisis, when many Americans shied away from new borrowing. Experts recommend paying your credit card bill in full each month to avoid interest charges that typically range from 15 to 25 percent.
Credit card debt treadmill
Among all Americans, 28 percent admit to not paying their credit card bill in full each month, the poll found. A striking 43 percent of those say they’ve carried a balance for two or more years, and almost 1 in 4 (23 percent) have been carrying debt for five or more years. Extrapolated out to the U.S. population, that means about 29 million Americans have been carrying a balance for at least two years.
Long-term debt is generally a sign that people are living beyond their means rather than using credit as a tool for short-term expenses, says credit expert Gerri Detweiler, author of “Reduce Debt, Reduce Stress.”
The survey supports that. When respondents were asked why they carry a balance, the No. 1 factor (cited by 32 percent) was covering day-to-day living expenses – not one-time circumstances such as a medical issue or an emergency home repair.
“A lot of times, credit card debt can just creep up on you,” says Detweiler, head of market education at Nav, a credit service for business owners. “The problem is, once you’ve had debt for several years with interest accumulating, it becomes very hard to pay off.”
Other noteworthy findings from the poll include:
- Midwesterners seem to live up to their frugal reputation. Sixty-four percent say they don’t carry a balance from month to month, compared to 58 percent of Northeasterners, 57 percent of Southerners and 56 percent of those who live in the West.
- Nearly a fifth of Americans started carrying over card debt recently. Just 18 percent of U.S. adults with credit card debt started revolving their balances within the past six months.
- Everyday spending is the leading contributor to card debt. After day-to-day expenses (32 percent), the biggest reasons cited by cardholders for racking up debt are: retail purchases such as clothing or electronics (16 percent), medical bills (12 percent), home repairs (10 percent), vacation expenses (10 percent), car repairs or maintenance (7 percent) or something else (7 percent).
- Medical bills are a significant factor for those who are unemployed and carrying debt. Eighteen percent cited medical expenses as the biggest reason they carry a balance, double the number compared to those who work full- or part-time.
- The more education you have, the less likely you are to pay off your credit card bill each month. One in three (34 percent) college grads admits to carrying debt, compared to just one in five (21 percent) of those with a high school degree or less.
Differences in income levels
Theoretically, earning more money should make it easier to pay off credit card bills.
But the survey found that Americans who make more than $50,000 a year are less likely to pay off their cards each month: 38 percent of them say they carry a balance, compared to just 24 percent of cardholders who make under $50,000.
Higher income cardholders are also holding onto their debt for longer periods. Twenty-seven percent of the $75,000-plus group says they’ve carried a balance for five years or more, compared to just 20 percent of those at other income levels.
Detweiler says higher earners get higher credit limits, so they have more room to rack up big balances.
“If you have a high income and a good credit score, you probably get a lot of offers and very generous credit lines,” Detweiler says. “It’s easy to spread debt among multiple cards, lose track of what you owe and then fall into the trap of supporting a certain lifestyle you feel like you can’t step back from.”
Affluent cardholders ($75,000-plus) are more apt to rack up debt on vacations and home repairs, according to the survey, with about 15 percent blaming those categories for their debt. In fact, those cardholders are five times more likely than the lowest-income group to say paying for vacations is the biggest reason they carry a balance.
Americans making under $30,000, meanwhile, are twice as likely as other income groups to blame day-to-day expenses such as groceries, child care and utilities for their debt, with about half citing daily expenses as the No. 1 factor.
Making ends meet has gotten more difficult for all Americans as the cost of living has outpaced income growth in recent years, says personal finance expert Helaine Olen, co-author of “The Index Card: Why Personal Finance Doesn’t Have To Be Complicated.”
“When I talk to people in depth and ask them what they’re spending their money on, what I often find is people spending more than a third of their income in housing costs, which have been going up at fairly high rates,” Olen says.
“Medical expenses, child care costs and college costs are also rising well in excess of inflation. Many people are underearning to the point where they can’t buy groceries without putting them on a card,” says Olen.
Olen notes that because the survey is based on self-reported information and respondents are known for downplaying things that might portray them in a negative light, the actual percentage of Americans carrying a balance every month is likely even higher than what the survey shows.
Age and generational differences
The survey also found that middle-aged Americans have the most trouble paying off their credit card debt each month. Thirty-six percent of Generation Xers (ages 37-52) and 33 percent of younger baby boomers (ages 53-62) carry a balance, compared to 26 percent of millennials, 24 percent of older baby boomers (ages 63-71) and just 19 percent of the Silent Generation.
That’s not surprising to Mary Gresham, an Atlanta-based clinical psychologist who specializes in financial issues. When you’re in those stages of life, you are typically still supporting your children, you are often paying college tuition, and you may have older parents to support as well.
“Many of the middle-aged people I see are just exhausted and stretched to the max, both financially and emotionally,” she says.
In general, the older you are, the more likely you are to have carried your credit card debt over the long term. Half of those ages 65-plus who carry card debt have had it for three or more years, according to the poll, with 39 percent admitting they’ve carried it for five years or more.
Medical bills become a larger burden as Americans age, the survey shows, with almost 1 in 4 seniors age 65 or older saying it’s the No. 1 reason they carry debt, and 18 percent of those ages 50-64 saying the same. Less than 10 percent of other age groups named it as the biggest factor.
How to make a dent in your debt
If you’re one of the 65 million Americans who carries credit card debt, experts say the following steps can help you start digging out:
- Consider a balance transfer.
If you have a good credit score, you may qualify for one of the best balance transfer cards. These cards give you an interest-free way to pay down debt for a fixed period of time. Just make sure you can pay off your balance in full by the end of the 0-percent-interest period, which is typically about 12 months.
Look for cards that have no balance transfer fees and a lengthy promotional period. If you don’t qualify for a balance transfer card, try calling each credit card company and ask for a lower interest rate.
- Analyze your statement.
Most Americans have no idea how much interest they are paying or what they’re spending their money on, Gresham says.
Take a look at a few months of credit card statements and mark each expense with an “N” for “need” or a “W” for “want.” That will give you a better sense of where you can trim your spending, she says. Your statement will also tell you how much you have to pay each month in order to pay off your debt in three years, including interest charges, which can be sobering.
- Create a payment plan.
Draw up a monthly budget to determine how much you can put toward your debt each month, and then commit to making those payments.
If necessary, consider taking on a second job and putting the additional income toward paying off your balance. If you can’t figure out a way to pay off your debt yourself within three years, Detweiler recommends contacting a nonprofit credit counseling agency for help.
- Pay in cash whenever possible.
Studies show people spend up to 30 percent more for the same item when they pay with a credit card, Gresham says. “Your brain really doesn’t compute the credit card with money,” she says. “Start paying with cash, and you will really notice a difference in your spending.”
The survey was conducted by Princeton Survey Research Associates International. PSRAI obtained telephone interviews with a nationally representative sample of 2,005 adults living in the continental United States. Interviews were conducted by landline (1,002) and cellphone (1,003, including 665 without a landline phone) in English and in Spanish by Princeton Data Source from Aug. 17-20 and Sept. 7-10, 2017. The margin of sampling error for the complete set of weighted data is \xb1 2.5 percentage points.