Credit card debt surpasses $1 trillion. Here’s the No. 1 culprit, pros say — and here’s how you can deal
These two helpful strategies that can buy debt holders some time.
Credit card debt in the U.S. surged 13% over the past year to a record $1.05 trillion; and in the past quarter, American consumers opened some 20.1 million new credit cards, according to TransUnion’s Q4 2023 Quarterly Credit Industry Insights Report released Thursday.
So what’s the big culprit here? Heightened consumer prices, says Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Inflationary pressures and higher-than-expected living costs have led to many consumers turning to bank cards to help make ends meet in recent quarters,” says Raneri.
If this is you, “first off, don’t panic if you’ve relied on your cards during this period of high inflation,” says Brent Boden, a certified financial planner and principal wealth manager at Savvy Advisors. “You’re not alone.” But you do need a game plan.
0% balance transfer offers
If you can manage to pay off your balance before the 0% period ends, this can be one of the most cost effective ways to get rid of credit card debt. There are a number of cards offering 0% for up to 18-21 months. That said, you need to pay the balance off during the 0% period, or you risk high interest rates.
For those with good credit scores or better — anything above 690 — Boden agrees that balance transfer cards are among the best options to move high-rate debt to a new card without 0% annual percentage rate, or APR. “These can be a great tool to help you consolidate your debt and pay it off without accruing additional interest,” he says, adding that anyone who goes this route should “be careful not to accumulate more debt while trying to pay those off when possible.”
Failing to tackle any high outstanding balances could result in thousands of dollars of interest payments and long periods of debt, adds Bankrate senior industry analyst Ted Rossman. “If you only make minimum payments toward the average credit card balance — $6,088 according to TransUnion — at the average rate of 20.74%, you’ll be in debt for 214 months and will owe $9,072 in interest,” Rossman said in a statement in response to the TransUnion report, adding that 0% balance transfer cards “allow you to move your high-cost debt over to a new card that won’t charge interest for up to 21 months in some cases.”
Other ways to get out of debt
For those who are starting to feel behind, Boden says there are dozens of ways to dig out of debt. “Start by assessing your monthly expenses and income,” Boden says, adding that anyone in this predicament should also “create a budget that allows you to allocate a specific portion of your income to paying down your credit card debt. This is a crucial step in understanding where your money is going and how you can redirect it toward your financial goals.”
Other helpful first steps to tackle growing credit card debt, Boden says, includes prioritizing your high-interest balances, cutting back unnecessary spending and opting for automated payments. “Paying down the cards with the highest APRs can save you a significant amount in interest payments over time,” Boden says.
Conversely, if you’re bad with budgeting, Nicholas Bunio, a certified financial planner with Retirement Wealth Advisors, suggests considering a loan to set up more steady payments. “Sure, there’s interest but it forces you to budget and pay this off,” he says, adding that “as long as you’re paying $X per month, you will pay it off.”
Bunio adds that the downside with a balance transfer card, for some, is staying up-to-date with payments. “People with bad budgeting will slip, not pay enough, then get hit with sudden interest and fees; or worse, rack up more credit card debt in the meantime,” he warns. “Now they have to pay that off, plus this balance transfer.”
