Average consumer carries $5,947 in credit card debt — a 10-year high

 The average consumer has $5,947 in credit card debt – a 10-year high

As Americans increasingly rely on credit to get by, new reports show some signs of potential trouble ahead.Total credit card debt hit a record $1 trillion in the latest quarter, the Federal Reserve Bank of New York said Tuesday.The average balance rose to $5,947, the most in 10 years, a separate TransUnion report found.But there are still opportunities for cardholders to provide "an end to the road to paying off debt," says one expert.

As Americans increasingly rely on credit to get by, new reports show signs of potential trouble ahead. Total credit card debt topped $1 trillion for the first time ever, the Federal Reserve Bank of New York announced Tuesday.According to a separate quarterly report from TransUnion, credit card balances increased nearly 20% from a year earlier. TransUnion found that the average balance per consumer rose to $5,947, the most in 10 years.

Not only are balances higher, but more cardholders are also carrying month-to-month debt, according to another Bankrate report. Of those with a balance on their card, 60% have been in debt for at least a year.For some, high-interest debt is 'their only option'Rising balances could pose problems for some borrowers, especially when student loan payments resume this fall, New York Fed researchers said.

"We also cannot discount the importance of higher interest rates on the cost of borrowing for households," said John Sedunov, associate professor of finance at Villanova University's School of Business. "Not only are goods and services more expensive, but so is money."After another rate hike by the Federal Reserve last month, the average credit card rate is now averaging more than 20%, an all-time high.

At nearly 20%, if you made the minimum payments on that average credit card balance, it would take you more than 17 years to pay off the debt and cost you more than $8,366 in interest, Bankrate calculated."People aren't financing purchases at 20% because they have other options," said Greg McBride, chief financial analyst at Bankrate. “They do it because it's their only option.

Factor in the personal savings rate, which hovered around 4.3% in June, well below the 10-year average of about 8.9% -- "I think it paints a picture of an economy where inflation is taking its toll on households," Sedunov said .

Overall, an additional 19 million new credit accounts were opened in the last quarter, driven in part by origins among Gen Z, or adults aged 18 to 25, who gained access to credit cards. TransUnion also found that the total number of credit cards reached a record 530.6 million.

"Like the general population, many Gen Z borrowers face the same financial challenges brought on by high interest rates and inflation," said Michele Raneri, vice president of U.S. research and consulting at TransUnion. "As a result, they are using these available credit products to help them cope with rising costs."

As the number of credit card accounts in the U.S. has increased, delinquencies have increased, the report said. TransUnion defines delinquent as a payment that is 90 or more days past due."The increase in delinquency over the last few quarters is something to watch," Raneri added. Lenders have already begun restricting access to less experienced credit users, she said.

"It's still a huge opportunity to get a 0% balance transfer card," McBride said. Cards offering 12, 15 or even 21 months interest-free on balance transfers are available, he added, and "if you have credit card debt, that's your first step — transfer that balance and get a head start on paying off that debt."Borrowers may also be able to refinance to a lower interest personal loan. Those rates have also climbed recently, but at an average of 10%, they're still well below what you currently have on your credit card.

Otherwise, ask your card issuer for a lower annual percentage rate. In fact, 76% of people who asked for a lower interest rate on their credit card last year got it, according to a LendingTree report."The fact that card issuers are still willing to give these breaks, even after a year of frequent rate hikes, is very, very good news for cardholders," said Matt Schulz, chief credit analyst at LendingTree.

In today's fast-paced world, convenience often comes at a price, and for many, that price is ever-increasing credit card debt. Recent data reveals that the average consumer has a staggering $5,947 on credit cards, reaching a 10-year high. This alarming trend raises concerns about financial well-being and highlights the need for better debt management strategies.

Understanding numbers

The latest statistics paint a vivid picture of the credit card debt landscape. Burdened by the easy pull of plastic, the average consumer has amassed a debt load not seen in a decade. This is a significant increase from a few years ago and it is necessary to analyze the factors that cause this increase.

 Economic Uncertainty: The last few years have been marked by economic ups and downs, leaving many families struggling to make ends meet. Unexpected expenses, job loss and the rising cost of living have contributed to the reliance on credit cards to bridge the gap between income and expenditure. High interest rates: Credit card debt often comes with high interest rates, making it difficult to pay off balances quickly. Consumers can find themselves trapped in a cycle of minimum payments, leading to a never-ending cycle of debt accumulation. Lifestyle pressures: Modern consumer lifestyles with an emphasis on consumerism and instant gratification have fueled the rise of credit card use. People often use credit cards to maintain a certain standard of living, even if it means racking up debt in the process.

The importance of debt management

With average credit card debt reaching unprecedented levels, it is critical for individuals to take control of their financial situation. Effective debt management can lead to improved financial health and greater peace of mind. Create a budget: Start by creating a comprehensive budget that outlines your income and expenses. This will help you identify areas where you can cut back and allocate more funds to pay off your credit card debt. Prioritize payments: Focus on paying off high-interest credit cards first. Favoring these cards will save you money on interest payments in the long run.

Consider Debt Consolidation: If you're juggling multiple credit cards with high balances, debt consolidation may be a viable option. It can make your payments easier and possibly lower your interest rates.Get Professional Help: If you feel like your credit card debt is overwhelming, don't hesitate to get professional help. Financial advisors can provide you with tailored advice based on your unique circumstances.

The current average consumer credit card debt at a 10-year high of $5,947 should serve as a wake-up call. It is essential to understand the factors contributing to this trend and take proactive steps to manage and reduce debt. By creating a budget, prioritizing payments, considering debt consolidation, and seeking professional help when needed, you can regain control of your financial future and achieve a healthier, debt-free life.