The number of people who have been in debt for 12 months rose 10 points from last year. Here’s what’s going on and how you can turn the statistics around.
As a credit card user, it may come as no surprise that once you’ve racked up a big balance, paying it off within a reasonable time frame can be difficult. A new survey conducted for CreditCards.com by YouGov found that among Americans who carry over credit card debt from month to month, 60 percent have owed their creditors for at least 12 months.
Additionally, 40 percent of these Americans say they’ve had their credit card debt for at least two years, 28 percent for at least three years and 19 percent for at least five years. Another 8 percent said they don’t know how long they’ve been in credit card debt.
“The percentage of people who have been in credit card debt for at least a year increased substantially — a whopping 10 percentage points from last year,” says Ted Rossman, senior industry analyst for CreditCards.com. Here’s what’s going on and how you can turn the statistics around.
Why you should pay off credit card debt quickly
Credit cards are designed to be safe, convenient and flexible payment tools. You can pay the bill in full or in any increment that is at least the minimum requested amount. Breaking up large transactions into a few installments can be sensible, but it’s best to not use them for long-term debt. Unless you have a card with an introductory 0 percent APR offer for a year or longer, the accumulated fees will be extremely expensive.
“If you have the average credit card balance ($5,270 according to TransUnion) and you only make minimum payments at the average interest rate of 18.17 percent, you’ll be in debt for more than 16 years and will end up paying a grand total of $11,875,” says Rossman. “This helps illustrate why it’s so important to pay way more than the minimum.”
Many cardholders don’t delete their debt quickly, though. This year’s survey found that 29 percent of Gen Xers, 22 percent of baby boomers and 12 percent of millennials with credit card debt have carried their balances for at least five years, while 7 percent of Gen Zers have carried their credit card debt for five year or more.
Reasons for debt longevity
Almost half of credit card holders who carry debt from month to month (46 percent) stated that having to cover emergencies and unexpected expenses is the primary reason for their credit card debt. More specifically, 11 percent said it was to cover emergency or unexpected medical bills, 10 percent for home repairs and 10 percent for car repairs. Sixteen percent said their debt was the result of some other type of emergency or unexpected expense.
Not being able to meet day-to-day expenses is also a major factor in acquiring credit card debt. Twenty-four percent of those who carry credit card debt said their balances were incurred for day-to-day expenses such as groceries, childcare and utilities; 11 percent cited retail purchases such as clothing and electronics; and another 11 percent said the unpaid balances were for vacation and/or entertainment expenses.
So, who is having the most trouble meeting their household expenses, then leaning on the cards to close the gap? Thirty-one percent of millennials with credit card debt said their day-to-day expenses are the primary cause of their credit card debt, followed by 26 percent of Gen Zers, 24 percent of Gen Xers, and 20 percent of boomers.
The impact of economic concerns on credit card debt
“Even though Americans’ total credit card balances are down 4 percent from late 2019, according to the New York Fed, our data is further evidence of the K-shaped economy,” says Rossman. “While many people are doing better, sadly, many others are doing worse.”
With recession worries intensifying, 45 percent of all cardholders and 53 percent of cardholders with debt say that losing their job would have a major impact on their ability to make at least minimum credit card payments over the next year.
Rising costs on goods and services, too, is a concern. The survey found that continued high inflation would have a major impact on 41 percent of cardholders overall and 51 percent of cardholders with debt.
Additional interest rate increases are a lesser concern, however, with 34 percent of cardholders overall and 46 percent of cardholders with debt stating these would have a major impact on their ability to make minimum payments over the next 12 months.
Keeping credit card debt low can be done
Although these survey results are alarming, not everyone is in the red. Just more than half of the cardholders (52 percent) currently pay in full every month on all their cards, thus avoiding interest entirely.
At 76 percent, a majority of U.S. adults have credit cards. Eighty-six percent of boomers have them, as opposed to 72 percent of millennials, 71 percent of Gen Xers and 63 percent of Gen Zers.
The more money people make, the more apt they are to have a credit card. Ninety-two percent of those with annual household incomes of $80,000 or more have at least one card, compared with 87 percent who have incomes between $50,000 and $79,999 do. Only 65 percent of Americans with incomes under $50,000 have credit cards.
Higher income equals more debt
Unsurprisingly, maintaining credit card debt is more common among those who have low incomes as opposed to people making the most. The survey found that 59 percent of cardholders with less than $50,000 in annual household income carry over debt, while 37 percent of cardholders with annual household incomes of $100,000 or more do.
If you have credit card balances now, Rossman suggests practicing fundamentals such as upping your income — perhaps via a side hustle or by selling stuff you don’t need. Review your expenses and cut down wherever possible, so you can free up money for faster debt repayment. The sooner you take action, the better.
“Credit card debt is easy to get into and hard to get out of,” says Rossman. “High inflation and rising interest rates are making it even harder to break free. If you’re struggling with credit card debt, my top tip is to sign up for a 0 percent balance transfer card. These promotions last as long as 21 months. Low-rate personal loans and nonprofit credit counseling can also be useful debt payoff strategies.”
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,419 adults, of whom 1,834 have a credit card and 879 carry a credit card balance from month to month. Fieldwork was undertaken August 24-26, 2022. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.