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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  • Jason @ WorkSaveLive

    We haven’t had a credit card balance in years and haven’t used one either.

    Saying that, I think I have finally convinced the wife to get one to take advantage of some of the great cards out there. I will use one for business and we may use another for personal use (groceries and gas).

  • We put about $1500/month on there but pay it off each month. My upcoming vacation had me put a bunch on there (paid off off course), but it is interesting to see these trends. Too bad they always come out long after.

  • I never keep a balance on the card Month-over-Month, but we use our card for everything. I would like to see a graphic showing the amount of rewards paid out vs. the amount of interest paid per person. It would be really telling and show if people are actually getting ahead with their rewards or not. I know, for one, that we tend to spend more with cards than cash, but we are earning rewards to the tune of 2 round-trip airline tickets per year, plus another heavily discounted ticket per year as well.

  • We are several months away from being free from the shackles of consumer debt.  Thanks for that part about sending $88 a month to a cc company for nothing!  Really motivating me to get this paid off even faster!!!!
    -M

  • Great stats & infographic. I always find it sad and amusing that people think 10 percent is a low rate on a credit card, when in this market they’d think it’s too good to be true for most investments. 10 percent is wonderful for someone: the credit card company.

    • So glad you didn’t fall asleep while reading it. 🙂

  • IHB – I wonder about the rewards thing too. I have a card that’s simple cash back and I tend to avoid more complicated rewards programs. I’ve found the rules change or it’s tough to take advantage of the rewards (like you can only use air miles when it’s inconvenient to travel), and it takes time I don’t want to spend just dealing with. Show me the money!

    SDR – Looking forward to the on-line fireworks display when you at last are liberated!

  • I have to say this doesn’t surprise me. There are a lot of people out there in bad financial shape right now. I have to say that we are doing great in comparison. We have no credit card debt, in fact no debt at all and are working on saving for retirement and our future. 

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