Many of the things we love about credit cards — convenience, safety, tracking, rewards — are the same qualities that tempt us into overuse. Now comes the aha! moment when we must confront our credit card debt, sponsored by the staggering 16+% interest rate carryover balances typically accrue.
Effectively managing credit card debt can be daunting. But with proper budgeting (including responsible spending), attention to due dates, having (and adhering to) a strategy, paying more than the minimum due, and maybe considering consolidation or discussions with a credit counselor, you can conquer credit card debt.
Know this going in: Plenty of folks are in the credit card debt boat. We’re Americans, and one of the things we’re best at is spending money we haven’t earned. Check it out:
Before the coronavirus pandemic, Americans piled on credit card debt as though it were a race to the top of Mount Everest. In November 2017, we surged past the previous peak of $1.02 trillion set in May 2008 and, for 28 months, we scarcely looked back. By the end of February, we’d tacked on another $98 billion, owing credit card issuers a record $1.1 trillion.
Then COVID-19 happened. In March, the economy was thrown in a deep freeze — one of those scary old Kelvinators that open only from outside — and, even as millions of Americans were laid off or furloughed, something weird happened: Credit card debt plunged. On a line graph, it resembles a cliff right out of a Road Runner cartoon: straight down.
In June, the Federal Reserve found that during March and April, revolving balances plummeted at an annualized rate of 65% — the biggest fall in the report’s 52-year history — to $1.02 trillion, wiping out two full years of debt pile-on. Perhaps we followed personal finance advisers’ advice and spent federal Cares Act checks on paying down debt.
Of course, there’s macroeconomics, and there’s what’s going on in your household finances. At the same time overall debt was plunging, the average credit card debt held by consumers was $6,354. For consumers carrying balances (58% of all active card accounts), that average debt was a staggering $9,333.
As we mentioned, it’s a big boat. That doesn’t mean you have to stay on until it finds an iceberg.