Credit card debt is climbing in the U.S., with the average adult owing $5,525 and the average household debt hitting $7,938. Over 457 million credit cards are circulating in the U.S., contributing to a staggering total debt of nearly $1 trillion.
Despite these high figures, not everyone carries a balance. The average debt on cards that aren’t regularly carried over is just $1,154. However, some states like Alaska and Hawaii see averages as high as $11,250 and $10,987 respectively.
Credit cards offer convenience and the chance to earn rewards but using them without caution can lead to significant financial harm. Tracking spending and taking advantage of rewards wisely can lead to travel and other perks without falling into debt.
Different sources report varying average debts. For instance, ValuePenguin cites the average household credit card debt as $5,700, whereas it’s $9,333 for households that carry a balance. TransUnion records an average per consumer of $5,236 to $5,554 over recent years. CNBC notes that only 10% of Americans maintain a balance over $5,000.
The real impact of credit card debt often depends on income levels. A high debt might not be a concern for a high earner, but for most, the key ratio to watch is the monthly credit card debt compared to gross income.
Personally, my average monthly credit card expenditure across three cards is $2,140, well below the national average of $5,200 for households. My strategy includes paying off my balance in full each month to avoid high interest rates, typically over 17%.
Income-wise, my earnings exceed $10,000 monthly, making my credit card expenditure less than 21.4% of my income. This disciplined approach allows me to maintain a savings rate of over 50%, with my primary mortgage debt below 25% of my monthly income.
Calculating your own credit card spending against your income is a useful exercise. Many people struggle financially not because of low income but due to high spending, which can be managed more effectively than trying to increase income, as salary raises are often minimal.
The takeaway is straightforward: if you can’t increase your earnings, reduce your spending. If cutting costs isn’t feasible, then the next step is to find ways to boost your income. For those struggling with high-interest credit card debt, consolidating to a lower interest rate through a new 0% APR card can help manage and reduce what you owe. Moreover, maximizing the benefits of high-reward cashback cards can keep more money in your pocket.
Always remember, managing your finances well by keeping track of your spending and making informed choices can lead to significant improvements in your financial health.
