DAVE & DUJANOVIC

What is behind rising credit-card debt? Financial expert weighs in.

Jun 15, 2022, 4:23 PM
(Photo Credit: CNN/Shutterstock)...
(Photo Credit: CNN/Shutterstock)
(Photo Credit: CNN/Shutterstock)

SALT LAKE CITY — After a big dip in 2020, credit-card debt is at its highest in 40 years according to the latest report by the Federal Reserve. Why is that number rising, and how do we combat it? 

Credit card debt in focus

Ted Rossman, Bankrate.com senior industry analyst, joined KSL NewsRadio’s Dave and Dujanovic (Dave Noriega and Debbie Dujanovic) to explain what’s to blame for rising debt and how can we combat it.

“Why did credit card debt climb so much in just one month?” Debbie asked.

“Inflation is definitely a big part of it. I would also note a few more glass half-full angles on this, which is that it’s usually reported as outstanding balances, not necessarily distinguishing who pays in full and who doesn’t,” Rossman said.

According to the Federal Reserve, only 45% of U.S. cardholders pay their card balance every month. Here’s a closer look at the card payment numbers from the Fed:

  • 45% always pay their card balance in full each month;
  • 27% carry a balance most of the time;
  • 21% carry a balance some of the time; and
  • 6% carried a balance just once in the past year as reported by The Street.

Rossman said the average credit-card debt is $5,525. If the cardholder pays only the minimum payment, it will take 16 years to pay down the debt to zero. In the meantime, the cardholder will pay $6,400 in interest. 

“So that’s really meaningful. That’s where we want to figure out a way to pay it down as soon as possible,” he said.

“Do we have any idea how much of this is frivolous spending or buying for wants versus needs?” Dave asked.

Rossman said lower-income households are using credit cards to meet family needs. Those include gasoline and groceries. Higher-income households are using credit cards for wants such as travel, he said.

“There’s something psychological to that. Maybe you use your debit card for everyday stuff like gas and groceries and you use credit for the big stuff like a vacation,” Rossman said. 

20% jump in credit-card debt in the U.S.

According to Investopedia:

  • The Federal Reserve recently released its Monthly Credit Report for April and found that, during that month, revolving credit increased 20% year-over-year. That totaled $1.103 trillion and surpassed the pre-pandemic high of $1.098 trillion.
  • Credit card balances likewise surged to a record high, with the Federal Reserve Bank of New York expecting a further increase over upcoming quarters.
  • Total household debt, which combines credit-card balances, auto loans, student loans and mortgage debt, surged to a record $15.84 trillion. Meanwhile, household debt expressed as a percentage of income rose to 9.3% by year-end 2021, compared to a pandemic-era low of 8.4% recorded at the start of 2021.

Take on your debt today

Rossman had several tips for cardholders in debt, including getting a zero-balance transfer card.

“You can pause that interest clock for up to 21 months with cards like the Wells Fargo Reflect or the Citi Simplicity or the Citi Diamond Preferred.”

Another way to knock down debt is to take up a side hustle, which Debbie said she did.

“I took a temporary, second job for three months and managed to pay off a credit card. It was about $2,500, and it was just hanging over my head for years. I got it paid off in three months, and it felt great,” she said.

Rossman also suggested applying for a low-rate personal loan to pay off credit card debt or nonprofit credit counseling agencies such as Money Management International.

“If you have good credit, maybe you can get a 6% rate for five years. It sure beats 16% for 16 years,” he said.

Related:

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Dave & Dujanovic can be heard weekdays from 9 a.m. to noon. on KSL NewsRadio. Users can find the show on the KSL NewsRadio website and app, as well as Apple Podcasts and Google Play.  

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What is behind rising credit-card debt? Financial expert weighs in.