With the introduction of major credit card companies like Visa and MasterCard in the mid-1970s, the U.S. public fell in love with the concept of having it now and paying for it later. Since that time, the credit card industry has grown into a multi-billion dollar one, with the average U.S. consumer having four credit cards with an average total household balance of nearly $8,000.
This number is causing concern among many within the financial world who argue that consumer credit card spending is dangerously close to outpacing U.S. economic growth. Last year, total credit card spending among U.S. consumers rose to $71 billion, a significant increase over 2014 total credit card spending of $57.4 billion. This figure, combined with rising interest rates and stagnant wage growth, has raised red flags among many within the financial community who worry that the U.S. economy is heading for a major uptick in credit card defaults.
Also cause for concern is the average credit card consumer’s apparent lack of knowledge about credit cards. For example, a recent survey conducted by Nerdwallet revealed that 54 percent of consumers “wrongly think that carrying a credit card balance helps their credit score” and 55 percent of respondents weren’t able to definitively say when “they start being charged interest on credit card purchases.” This lack of knowledge often results in consumers making poor and costly choices.
For individuals who have balances on multiple credit cards, it’s important to be strategic about paying down or off debt. For example, it’s wise to transfer balances to a credit card with a zero percent or low interest rate and to work to pay off cards with higher interest rates first while continuing to make minimum payments of other cards. Additionally, it’s incredibly important not to continue to rack up debt at an unmanageable pace.
High interest rates and hidden fees can quickly result in individual accruing overwhelming amounts of credit card debt. For individuals who are unable or struggling to make even minimum payments, it’s a good idea to consult with a bankruptcy attorney. An attorney will assess one’s situation and help determine if bankruptcy is a smart and viable option.
Source: The Street, “Credit Card Debt Is at Dangerous Levels,” Jason Notte, March 23, 2016
Bankrate, “The evolution of credit cards,” Sheyna Steiner, Dec. 22, 2008
Consumer Financial Protection Bureau, “Consumer credit card market report,” December, 2015