Thanks to a stronger market and rising interest rates, Americans now have more than $1 trillion in credit card debt. This high volume of debt makes it more difficult for consumers to stay ahead of their monthly bills. Unfortunately, the debt crisis is only growing.
Credit Card Debt by the Numbers
The Federal Reserve released a report in April detailing just over $1 trillion in consumer credit card debt, a rise of 6.2 percent in just one year. This is the highest it’s been since 2009 when the recession hit and millions of Americans turned to their credit cards to try to make ends meet. Thankfully, defaults are only at 2.3 percent compared to the 6.8 they reached during the Great Recession.
On average, U.S. consumers owe $16,600 in credit card debt. For those who don’t pay off their credit cards in full each month, the balance is about $9,600 monthly. For credit card holders who only make their minimum payments, they’re paying more than $1,250 in interest each year. That’s an increase of $69 in yearly interest compared to last year.
The rising use of credit cards and higher interest payments can be largely attributed to the three, quarter-point hikes by the Federal Reserve. Because rising rates increase banks’ expenses, they’ll make the difference by raising interest rates on credit cards. Financial gurus estimate that these rising interest rates will cost consumers $1.6 billion in credit card interest.
The Federal Reserve is expected to make two more rate hikes this year, which will bring the total interest paid to $1,301 for each consumer. That doesn’t seem like much of an increase, but it adds up when borrowers only make minimum payments.
Wages Not Equal to Expenses
Interest rate hikes have increased the cost of regular expenses, and the average income isn’t enough to meet the rising prices of goods and services. Over the last 10 years, wages for those in the working class have risen 21 percent. However, medical costs are 57 percent higher, food is 36 percent more, and housing costs are 32 percent greater than they were a decade ago.
“It’s not surprising that debt continues to increase when it’s becoming harder to make ends meet,” reported the NerdWallet 2016 Annual Household Debt Survey.
Get Your Debt Under Control
Despite difficulties with the economy and a wage that’s unequal to the goods and services being sold, there are still ways you can get your debt under control. Here are some tried and true methods:
Consider debt consolidation options. It can feel pretty overwhelming to handle multiple credit accounts, and it’s easy to miss payments. Consolidating your debt onto a 0 percent APR credit card or a single balance can ease the repayment process and reduce the interest you’ll owe in the long run.
Don’t take out more debt. You’ll never get out of debt if you don’t stop the bleeding. Cut up your credit cards and learn how to live within your means. Make do with your car instead of buying a new one every two years. It will require a lifestyle change, but it will be worth the effort.
Budget with the purpose of eliminating debt. This requires changing your mindset about spending money. Instead of putting extras towards savings or an upcoming vacation, put it towards your debt. Track every dollar coming in and out, and put as much towards your debt as possible.
Make your plan for eliminating debt. Everyone who successfully gets out of debt has a plan for doing so. They budget in a certain way or follow a regimented debt elimination program like the debt avalanche or debt snowball. Consider different strategies for paying off debt and stick with the plan.
Discuss your options with creditors. You might not realize it, but creditors are available and often willing to work with you. They’re as interested in getting their money back as you are in paying it. Explain your situation to them, and see if you can develop a repayment period that works better for you.
Visualize your debt free life. Sometimes, all it takes is an image of your life without any debt hanging over you to motivate action. Think about all that you can do without making monthly payments.
If you don’t take action now to eliminate credit card debt, you’ll pay thousands in interest every year. Interest rates will continue to rise, but if you can learn to manage your debt now, you’ll rise to the top now and in the future.