SALT LAKE CITY (ABC4) – Recent news coverage has paid great attention to the national economy, covering topics from interest rates, housing markets, and the national deficit. Average American workers, however, are more likely to suffer under the burden of personal credit card debt.
ABC4 spoke with Ted Rossman, Senior Industry Analyst at Bankrate.com about the New York Federal Reserve Bank’s report on credit card debt in the U.S. The report includes all credit card debt for the first quarter of 2022.
Rossman expected to see an increase in total credit card debt in the U.S. but was surprised the report showed a slight decrease in total debt since quarter four (Q4) of 2021. He reports that Americans had a total of $856billion dollars in credit card debt as of Q4 in 2021. That number has gone down to $841billion for Q1 in 2022, according to the New York Federal Reserve Bank’s report.
Rossman frames these findings by discussing how Q4 of 2019 held the record for the total highest amount of credit card debt nationwide, and how the COVID-19 pandemic likely explains consistent decreases in credit card debt until Q1 in 2021. He says people spent less in general during the pandemic and reported paying off portions of their credit card debt with government stimulus money. “The real anomaly is how much credit card debt fell during the pandemic,” says Rossman.
Decreased COVID-19 restrictions likely caused the uptick in credit card debt during Q4 of 2021, in addition to usual higher spending trends in Q4 of most years, says Rossman. He says he expected this trend to continue throughout Q1 of 2022 and was surprised that it did not. “Balances are still higher today than they were a year ago,” says Rossman, commenting on how recent trends represent more of a plateau in credit card debt than a significant drop.
“People frequently pay off credit card balances during Q1 of every year,” continues Rossman, indicating the recent drop in total credit card debt is something that usually happens every year.
Rossman notes how the 2008 financial crisis may be a good predictor of how we’ve seen credit card debt trends change in the U.S. during COVID-19, and how they might trend in the future. He says the crisis took “Five years to find the bottom” of total credit card debt, and another five years to climb up to the highs recorded in 2018 and 2019. Rossman predicts a similar process will occur after COVID-19, indicating we may be only at the beginning of the upswing of total national credit card debt.
As far as why credit card debt in the U.S. is a compelling statistic, Rossman says it can provide insights into total consumer spending and the economy’s health. “Things can feel really bad right now,” says Rossman regarding high-interest rates and high levels of debt, but he says high levels of credit card debt can also indicate increased spending by consumers who are benefiting from an excellent job market. In short, he says in some ways, high national credit card debt can demonstrate how an economy is healing after a crisis.
Rossman acknowledges the huge burden of credit card debt felt by many U.S. households. “Those with average credit card debt in the U.S. are likely going to take 16 years to pay off their debt at high-interest rates if they only make minimum payments,” says Rossman.
He does suggest several solutions for households suffering from high levels of credit card debt.
Apart from making all total payments on credit card balances, people should consider taking out low-interest bounce-back loans or 0% balance transfers to pay off their debt at a lower interest rate.
Rossman says most people with a credit score above 670 should be eligible for this type of loan. Otherwise, Rossman suggests seeking assistance from a non-profit credit counseling company, such as Money Management International.