We’re twice as likely to add thousands to our debt than anything to our savings.
Excluding mortgages, average American credit card debt and personal debt is up to $38,000 — a $1,000 jump from last year.
About a third of Americans accumulated between $5,000 and $25,000 in debt over the last year. Only half that amount added to their personal savings. And credit card debt could be a “key culprit” to the surge, says new data from investment company Northwestern Mutual. It now accounts for a fourth of a person’s debt, jumping six percentage points since last year and tying with mortgage debt.
Can we pay down our American credit card debt?
Most of us want to. More than half of Americans (53 percent) said their top financial priority in 2018 was to reduce debt.
Yet we’re spending slightly more on non-essentials each month than we are on debt repayment. How much more? One percentage point, but still. Northwestern Mutual found that after we cover basic necessities like food, most of our income falls into two buckets, like this:
- Discretionary expenses (from entertainment to travel): 37 percent
- Paying off debt (from credit cards to student loans, but excluding mortgage): 36 percent
And — no surprise here — a breakdown of our so-called discretionary spending shows the top bloodsucker there is often expensive dining and nightlife:
- Dining and nightlife: 15 percent
- Personal passions/hobbies: 13 percent
- Personal care: 13 percent
- Clothing: 13 percent
- Leisure travel: 10 percent
Is being in debt even bad?
If you’re like 1 out of 10 Americans, you believe you’ll be in debt for life, the data shows.
When you pair that with our collective American credit card debt — over a trillion dollars — it’s easier to understand that perspective. In fact, a fifth of Americans are taking at least half of their income and using it to pay down debt.
But the study also found another prevalent belief — this one may be keeping folks from prioritizing credit card debt: More than half of Americans (56 percent) feel debt has “low” or “no impact” on their path to financial security. Debt.com has previously reported that it impacts on our mental health.
Downplaying debt should certainly make it easier to choose a night on the town over another boring interest payment. Some of us care more, though. A minority of people do consider debt to have a “substantial impact” on their future: 17 percent.
What about external factors like the Federal Reserve?
Paying down credit card debt can also get hard when interest goes up — which it’s likely going to continue.
The Federal Reserve is planning two more interest hikes this year, CNBC reports, on top of the two, it already made. And those hikes “might cost you thousands of dollars,” says CPA and Debt.com’s chairman Howard Dvorkin.
He explains how that works:
You don’t need to be an economist to understand that when interest rates go up, you pay more for the money you borrow. Right now, the average interest rate for credit card balances is hovering around 17. That’s near a record high.
Think about that: for every dollar, you carry on your credit card each month, you owe 17 cents. Sadly, that might become 18, 19, or even 20 cents very soon.
As a result, we need to find more money for these extra costs.
“Where will these otherwise hardworking Americans find the money to pay for the increased cost of borrowing?” Dvorkin asks. “Simple. They’ll borrow more.”
Sick of drowning in credit card debt? Check out How to Reduce Your Credit Card Debt in 5 Easy Steps.
For help getting out of credit card debt talk to a certified consumer credit counselor today for an expert opinion on your best option.
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Article last modified on December 28, 2018 Published by Debt.com, LLC . Mobile users may also access the AMP Version: Americans Can’t Stop Swiping Their Credit Cards - AMP.