Americans' credit card debt getting worse. What NJ residents carry highest debt?
Consumer debt is deepening.
More people are carrying more credit card debt for longer periods of time at record-high interest rates. According to the Federal Reserve Bank of New York, credit card debt hit a record $1.03 trillion in the second quarter of 2023, up from $986 billion at the end of March.
“We’re not only moving in the wrong direction in terms of the number of people with credit card debt, but also how long they've had it,” said Ted Rossman, a senior industry analyst at Bankrate.
Here are the numbers, according to research from Bankrate, a consumer financial services company:
About 80% of Americans have a credit card.
About 53% pay their full balance each month, while 47% carry it from month to month, an 8% hike from 2021.
Sixty percent of those who carry the debt had done so for at least a year, up from 50% two years ago.
The average credit card rate reached 20.72% this year, up from 16.3% since early in 2022 and the largest two-year increase since Bankrate started tracking the data in the mid-1980s.
“Too many Americans have let their credit card debt get out of hand, with households owing over $10,000 on average and the nation well over a trillion dollars in debt,” WalletHub Analyst Cassandra Happe said. “While living in certain cities can help suppress debt with high wages and a low cost of living, ultimately it’s up to cardholders to practice careful budgeting and pursue strategies to eliminate their debt, from strict payoff plans to consolidation to debt management programs.”
Bankrate surveys have shown that most people get into problematic levels of credit card debt from emergency expenses such as medical bills or car or home repairs. A smaller percentage of people, mostly those with lower incomes, use credit cards to be able to pay for monthly expenses such as gas and groceries. Many purchases on Black Friday, Cyber Monday and during the holiday season are often the buy now-pay later variety.
Two NJ cities where debt is worst
U.S. consumers added $30 billion in credit card debt in the third quarter of this year, according to research from WalletHub, a personal finance company. The company, using TransUnion credit data, came up with a list of 182 cities where residents have accumulated the most – and least sustainable -- credit card debt.
Miami was first (which is worst) overall with a median credit card debt of $3,106 that will cost $3,886 and take nine years and three months to pay off, based on a 22.77 percent interest rate.
Two New Jersey cities made the list:
Newark is 120th, with median debt of $2,192 that will take four years and three months to pay off.
Jersey City is 178th, with a $2,531 median debt that will take two years and five months to eliminate.
(Note: The rankings factor median incomes of residents of the cities, which explains why the repayment time for Jersey City residents is shorter than for Newark residents, despite the median debt being higher.)
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How do you avoid worsening debt?
Rossman urged people to avoid making minimum payments on their cards. Doing so on a credit card with a balance of $6,088 today would take nearly 18 years to pay off if it has the average 20.72 percent interest rate.
Those payments would include a total of $9,063 of interest. Retail store credit cards are even worse, with an average interest rate of 28.93. A $1,000 purchase would take more than four years to pay off with minimum payments and would include $715 in interest.
Instead, balances should be paid in full whenever possible and not chase rewards points. Those who pay their monthly bill in full are the ones getting free trips, cash back and other benefits. You can still get it when you’re carrying a large balance, but paying 20 percent interest for 2 to 5 percent cash back or some airline miles is a losing proposition overall.
“Credit cards are like power tools in that they can be really useful or really dangerous,” said Rossman. “It all depends on how you use them. You can upgrade to first class and get some money back or you can get trapped in a very expensive debt cycle.”
What can you do?
Zero-balance transfer cards are generally available to those with a FICO score of 670 or better, usually offering balances of around $5,000 and a pause on interest for nearly two years, Rossman said.
Those with lower credit scores who can’t secure those cards could look at nonprofit credit counseling agencies that can often negotiate payback plans with credit card companies over a four- to five-year period with interests rates of around seven percent, which Rossman notes is similar to the terms of a personal loan people with higher credit scores can obtain.
These companies are preferable to for-profit debt relief companies that essentially instruct people to allow their accounts to go into delinquency so settlements can be reached.
The credit card delinquency rate has doubled over the past two years and is the highest it’s been since 2012. That’s not bad news for all credit card issuers, however. For example, business at American Express is booming because the country’s debt-to-income ratio is still low and because its cardholders have a higher income than most and are more likely to pay their bills in full each month. It’s not a great time to be in the credit card business for mainstream companies such as Capital One or issuers of subprime cards for people with lower credit scores.
Rossman said while people with lower incomes are more likely to have credit card debt, those with higher incomes are more likely to keep balances on their cards on a long-term basis. The reason for that is likely twofold: Those who make more money have a higher cost of living, so they spend more and keep higher balances; and their income gives them more access to credit, which can get people into trouble.
This article originally appeared on Asbury Park Press: Federal Reserve Bank of NY says credit card debt hit record number
