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A recent report from TransUnion found that credit card debt has risen significantly in the last year. As of the first quarter of 2023, tidal credit card balances for consumers in the U.S. totaled $917 billion. That’s almost 20% higher than the total of $769 billion in consumer credit card balances in the first quarter of 2022.
Let’s explore the factors contributing to higher credit card debt and how to dig your way out of this type of debt.
Credit Card Debt Is on the Rise
In the first quarter of 2022, TransUnion reported that the average credit card balance per consumer was $5,010. A year later, in the first quarter of 2023, TransUnion found that the number was up to $5,733.
Why Is Credit Card Debt Rising?
It’s no secret that the economy has been turbulent for the last few years. But as credit card debt rises, it becomes a growing burden for household budgets.
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Here’s a look at some of the reasons credit card debt might be increasing:
- Rising interest rates: As the Federal Reserve raises interest rates, credit card APRs increase. For example, the average credit card interest rate was 20.68% in May 2023. That’s a big jump from the average of 14.60% in 2021. With higher interest rates, credit card holders with a balance will pay more in interest.
- Inflation: In the last few years, paying for the essentials has gotten more expensive. With costs rising, many are forced to lean more heavily on their credit card to make things work.
- Unexpected expenses: If you don’t have an emergency fund to lean on, you might get stuck using your credit card to cover an unexpected expense. For example, paying for a major car repair or medical bill with your credit card could push your balance higher.
With higher interest rates, credit card holders with a balance will pay more in interest.
A combination of higher costs and rising interest rates has created the perfect storm for rising credit card balances.
How to Get Out of Credit Card Debt
The widespread economic conditions are less than ideal. And the notoriously high interest rates attached to credit cards make it easy to feel stuck in credit card debt. But as an individual or a household, you can take action to minimize this type of debt.
Here are some ways to eliminate your credit card debt:
- Stick to a budget: Build a budget with a focus on spending less than you earn. If you are able to stick to the plan, you’ll avoid adding any extra debt to your credit card balance.
- Make more than the minimum payment: While you can technically get by with just paying the minimum, that could keep you in credit card debt for years. If possible, make more than the minimum each month.
- Consider debt consolidation: Debt consolidation involves taking on a fixed-rate personal loan to pay off your existing credit card balances. With a single monthly payment and a lower interest rate, you might be able to get out of debt faster.
- Try the debt snowball method: If you have any room in your budget for extra payments, you’ll use this to pay off the smallest balance first. Once that monthly payment is eliminated, you can roll the funds into your snowball to tackle the next largest balance.
- Cut unnecessary expenses: Most of us have some extra expenses in our budget that we could live without. If you are in credit card debt, consider slashing expenses temporarily while you dig out of debt.
- Increase your income: The reality is there is only so much you can cut out of your budget. But increasing your income comes with unlimited potential. A few ways to grow your income include asking for a raise, picking up overtime, and building a side hustle.
The Bottom Line
As you navigate turbulent economic times, leaning on your credit card might feel unavoidable. The good news is you can actively take steps to lower your credit card debt and eliminate this uncomfortable burden permanently.
If you decide to pursue a debt consolidation loan, explore your options today.
Article Topics
Debt Consolidation
Sarah Sharkey is a personal finance writer with a Master's in Management from the Hough School of Business at the University of Florida. She enjoys helping people make better financial decisions and has written for numerous personal finance publications, including Money Under 30, Business Insider, and The College Investor. Sarah enjoys traveling, hiking, and reading when she is not writing.
