America's Credit Card Debt Crisis

The number of Americans struggling under the weight of owing money has significantly increased in the past two years, with an estimated 56 million credit cardholders in the country having been in debt for at least a year, according to a new survey by Bankrate shared with Newsweek.

The New York-based consumer financial services company found that nearly half of credit cardholders (49 percent) carry a balance month to month, up from 39 percent in 2021. More than half of those in debt (58 percent, the equivalent of 56 million people) have been in debt for at least a year, up from 50 percent in 2021.

While inflation has considerably gone down last year after reaching a 40-year high of 9.1 percent in June 2022, Americans are still suffering from a high interest rate environment, while many have burned their savings during the pandemic. Last year, Newsweek reported that a majority of 55 percent of Americans were then worried about repaying their debt, with the average U.S. credit card debt having reached the $1 trillion mark.

Despite the progress recorded by the resilient U.S. economy, with the Federal Reserve declaring last year that it would have soon shifted towards cutting rate, the situation hasn't much improved for many Americans.

Bankrate estimated that the average credit card rate reached a record high of 20.74 percent in 2023, up 4.4 percentage points compared to the beginning of 2022.

The number one reason that cardholders in debt identified as the cause of their outstanding balance was having to pay for an emergency or unexpected expenses, as 43 percent of respondents to the Bankrate's survey said. This included paying for medical bills (11 percent), car repairs (10 percent), home repairs (9 percent) and others (14 percent).

The second most common reason identified by cardholders for their debt was linked to their day-to-day expenses (26 percent), a sign that many Americans are still struggling with the higher cost of living.

"Over the past two years, Americans' credit card balances have skyrocketed 40 percent, according to the New York Fed," Bankrate Senior Industry analyst Ted Rossman said.

"Most cardholders' rates have risen five-and-a-quarter percentage points during that span as a result of the Fed's rate hikes meant to combat inflation," he added. "It's no wonder, then, that we're seeing more people carrying more debt for longer periods of time. Silver linings are that delinquencies and Americans' debt-to-income ratio remain relatively low despite challenges such as higher prices and higher interest rates."

Crucially, one in 10 of those holding credit card debt thought they wouldn't ever be able to get out of this debt. More than one in four (26 percent) thought they would be able to repay it at some point, but not for at least five years. Some 47 percent said they had a plan to pay their debt off.

One in five respondents with debt (22 percent) said they felt overwhelmed by it.

Those who are unable to pay off their debt for an extended period of time are likely to face unwanted interest which in turn runs the risk of dragging them deeper in debt, in a loop that's hard to escape.

"While Americans are managing their credit card debt pretty well, all things considered, we are seeing pockets of trouble at the household level," said Rossman. "If you have credit card debt, this is probably your highest-cost debt by a wide margin (the average rate is a record-high 20.74 percent)."

Rossman's tip for those in debt is to sign up for a 0 percent balance transfer card which would allow them to move their existing debt to a new card which won't charge interest for up to 21 months.

There's also a significant generational difference among cardholders having credit card debt.

Overall, Gen Xers (those born between 1965 and 1980) and Millennials (born between 1981 and 1996) were more likely to have credit card debt than Baby Boomers (born between 1946 and 1964) and Gen Zers (born between 1996 and 2012), with 55 percent and 51 percent respectively. Some 44 percent of Boomers with a credit card were in debt, while the percentage was slightly higher among Gen Zers at 48 percent.