History shows Americans have always had some kind of a love affair with debt (America started to become a serious debtor nation when females earned the right to vote but that is another topic!). American household debt has increased on average each year for the past 10 years. Read on to find out about what is the average American household debt level.
What is Credit Card Debt?
Credit card debts are a portion of consumer debt (that also includes auto loans, student loans and other loans) that needs to be paid off monthly. These are also termed as revolving debt.
Credit card debt, in particular, have risen consistently over the past decade, according to the available data.
Then this should not surprise you that in the recent years more people have seen an increase in their total debt rather than new debtors adding up in the economy. Since 2000, the average credit card debt has risen by 52%.
What is the Average Credit Card Debt Per American Household?
The median debt per American household at present is $2,300 while the average debt is $5,700. More than 41% households in the country are saddled with credit card debt in some form or the other.
In August 2018, the average credit card debt per household was $8,437. Currently, there is $1.042 trillion in total credit card debt that is divided among 123 million households across the country. This figure exceeds the $1.02 trillion pre-recession record that credit card debt had created in 2008.
Here is the average household credit card debt on the basis of location and demographics.
The average credit card household debt varies widely by region or state. The highest debt is seen in Alaska at an average of $13,048. This is 13% more than Wyoming which is next on the list but at least in Wyoming you will not hear gunfire at night like you do in Chicago or LA! Ohio has the lowest credit card debt in households at just $5,446 and this state is doing very well with oil shale and so on.
Maine and South Carolina are also home to low average credit card debt per household. Utah, Oregon (riots in Portland all the time and a state that is anti-business), New York (a state that has high taxes and has seen its middle class devastated), and Montana are some other states with high average credit card debt per household.
By Age and Gender
Households with men averaging between 45 and 54 years saw more credit card debts as compared to millennials and female counterparts. Debts peak for baby boomers at $9,096. This group tends to be the largest credit card spenders as well. Most millennials and people above the age of 60 do not carry a credit card.
The mean credit card debt in households with women as the primary decision maker was 22% less at an average of $5,245. This is largely because women prefer using debit cards over credit cards. Men tend to be big credit card spenders. The Home Depot loves that! So does Best Buy!
Credit card debt on average is higher in households with greater income. The average credit card debt for households with incomes in the highest annual percentile (90th to 100th) is $11,200.
This is nearly four times the average credit card debt in households that make the least. However, those on the lower side of the spectrum carried more debt as a percentage of their income.
Debt of Transactors vs. Revolvers
Transactors are those credit card holders who pay off their credit card in full each month. They use their card to make purchases. However, do not let the debt accrue beyond the monthly billing cycle. Revolvers on the other hand carry balances on their cards and pay interest charges month on month.
Credit card balances are not debt at all for pure transactors as they tend to pay it off before any real interest is charged. However, revolving credit card debt is on the rise in US households.
According to National Foundation for Credit Counseling, average American household credit card debt per household after falling steadily from 41% since 2000 has risen recently to 38% in 2018. Americans are indeed running higher debt levels.
Causes of Increasing Average Credit Card Debt Per Household
It is assumed that average credit card debt per American household is increasing due to binge purchases. It is a fact that retailers and credit card companies alike encourage shoppers to spend more by offering discounts, rewards and cash back.
Credit card delinquency rates track the percentage of American households who are late in bill payments and in turn accrue penalties and interest charges. As per Federal Reserve, credit card delinquencies of 30 days or more has been on the rise after steadily falling for the past couple of years.
However, as per recent reports, the prime cause of credit card bankruptcy is increasing health care costs. Credit cards are the first financial tool most people resort to for paying unprecedented medical bills.
The debt starts racking when they are unable to pay off the monthly bills and the mounting interest charge. High deductible plans are also some part to blame. It takes a balance of $2,000 to $5,000 on credit cards for insurance companies to cover medical costs.
The Bankruptcy Protection Act, 2005 is also a major reason for the increasing average credit card debt in US households. The Act intentionally made it harder for people to declare bankruptcy forcing them to run up credit card debt to pay off their day-to-day expenses.
The situation worsened in 2008 when homeowners were not left with any equity in their homes. They were forced to default on payments and walk away.
Steps to Get Out Of Credit Card Debt
There are always ways to erase all of that red ink and pay off your credit card debt. These steps will help you get out of a credit card debt.
1. Compute Your Current Debt
Start by figuring out the money you owe. Separate the interest and penalties to arrive at the principal amount which you owe to credit card companies.
2. Come up with a Debt Retiring Strategy
There are two strategies that you can use to pay off multiple debts – debt avalanche or snowball. In the avalanche approach, you first pay off those cards that have a higher interest rate.
This helps you save some money in the long term in terms of interest costs. In the snowball approach, you take care of the smallest card debts first to help you gain gradual financial momentum.
3. Stop Compulsive Spending
You need to take a hard look at your spending habits and save wherever possible. Curb the compulsive spending cycle on needless things to avoid finding yourself in the same situation again and again.
4. Balance Debt with Transfer Cards
These come with an introductory 0% interest rate that can give you some breathing room. However, the benefits last for just a year or 6 months. You need to whittle down your credit card debt before the higher interest rates kick in.
The Bottom Line
Currently, the overall credit card debt is down to 26.7% of the total household debt partly because of the Dodd-Frank Wall Street Reform Act (this is the bill that has destroyed small banks and therefore small businesses and Barney Frank is the one who started the real estate crisis but this is another topic) that tightened credit card standards and increased banking regulations.
You can reduce the burden of interest costs and avoid falling into the credit card debt trap by paying off maximum possible monthly balances on your card.