(NEW YORK) — U.S. credit card debt has soared over the last couple of years and recently it reached a major milestone.
Americans’ combined credit card balances topped $1 trillion dollars last year, according to the Federal Reserve Bank of New York.
By comparison, combined credit card balances were $680 billion a decade ago, according to federal data.
While growing online sales have fueled the spike, business experts say the numbers are concerning as more people are not paying off their full balances and facing costly interest payments.
During the pandemic, many Americans used stimulus payments from the government to help pay off their credit card debt, but things drastically changed once the stimulus dollars dried up.
At the end of 2021, 39% of credit card holders carried debt from month to month, but that jumped to 47% in 2023, according to data from Bankrate, a consumer financial services company.
The number of Americans missing payments also has increased as the average credit card balance now stands at just over $6,000, which is the highest in more than a decade, according to TransUnion.
Credit card delinquencies are rising fastest among lower-income borrowers, millennials and people who hold other kinds of debt, like auto or student loans, according to the Federal Reserve Bank of New York.
Experts say the effects of rising inflation are one of the major factors behind the problem.
With prices rising, consumers have had to spend more on their cards for their goods.
At the same time, the Federal Reserve has raised interest rates to combat inflation, leaving credit card users with higher payments if they don’t pay off their monthly balance in full.
For example, a credit card user with a balance of $5,000 would have to pay an additional $7,000 in interest with a 21% rate if they paid their bill’s $35 minimum, according to Bankrate. And it would take 16 years to pay off the debt.
Credit card holders do have options to alleviate the debt, according to experts.
They can sign up for a balance transfer credit card, which allows a user to move existing debt to a new card, usually at much lower interest rates for a set amount of time.
Consumers can also call their credit card company and try to negotiate a lower interest rate. Credit counseling services are also a strong option to lower debt, according to experts.
Experts also warn against opening and closing credit card accounts too quickly as it can lower your credit score.
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