Credit Card Debt Trends

Jul 2, 2012 by

credit cardsI came across a couple of weeks ago this interesting infographic put out by CreditCards.com, based on data from the Federal Reserve Bank (released recently, but drawn from consumer surveys done in 2010).

CreditCards.com Infographic: Americans shed credit cards and debt post-recession

So among Americans who have credit cards, the median number of credit cards per household is two. Our two-person household has four cards, so we’re above the median. But we’re a bit of a special case because we split time between two countries, so my wife and I each have one account that works best in each country.

Average and Median Credit Card Balances

That the average credit card balance is much higher than the median—$7,100 versus $2,600—I think is indicative of some relatively few in number but whopping big balances that are driving up the average. (See here for an explanation of average and median.) Due mainly to travel that my wife’s work requires, our typical credit card balance is likely in the vicinity of the $2,600 median, but we pay it off each month.

Median new monthly charges were $300 in 2010 compared to $260 in 2007. This may at first seem inconsistent with the $400 decline in the median balance over the same time period. I’m speculating, but my guess is balances were first paid down, say in 2008 and 2009 as the financial meltdown-caused recession took hold and consumers worried about their jobs, but by 2010 people were again charging more on their cards. Or, a somewhat different interpretation: After paying down credit card balances in anxiety about the future, Americans are opting now to put more expenses on their cards because their incomes have not recovered, post-recession—not a sustainable situation, if this theory is correct.

Average Credit Card Interest Expense

Americans pay an astonishing amount of interest charges to credit card issuers. Just a quick, back-of-the-envelope calculation:

Average credit card balance = $7,100

National average credit card interest rate = 14.92%

Average interest expense = $7,100 x 0.1492 = $1,059 per year, or $88 per month, or nearly $3 per day!

Often overlooked is the opportunity cost of sending $88 each month to a credit card company—in exchange for nothing—instead of saving an additional $88 per month.

→ Earning just 4% annually on $88 per month saved in a tax-deferred account would yield over $60,000 in 30 years.

If you’re carrying significant credit card balances, my aim here isn’t to depress you! On the contrary, I hope knowing the big benefits of paying down your credit cards will inspire you to take the plunge and initiate your own, do-it-yourself debt payoff plan or meet with a nonprofit credit counseling agency to learn whether a Debt Management Plan is a good fit for you. Either way, spend thirty minutes with your family visualizing how your lives would be different if your credit card debt vaporized. My bet is that vision will help spur you to (yes painful, but necessary) action.

Are You Following the Credit Card Trend?

How do your family’s statistics compare to the medians and trends highlighted in the infographic? If you have a lot of credit card debt, are you working a plan to free yourself of this burden on your family?

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