U.S. credit card balances surged in the third quarter to a record $995 billion, according to new data from TransUnion, one of the three major credit-reporting agencies. Individual balances also jumped — the average consumer had a balance of $6,088, the highest since 2009.
Paul Siegfried, senior vice president and credit card business leader at TransUnion, says a record number of new account originations over the past couple of years played a big role in fueling the growth of credit card balances this year. He adds that total credit lines are also growing, reaching a record aggregate total of $4.6 trillion.
“As consumers have access to more cards and higher credit lines, we see that the recent rise of inflation and associated cost of goods is leading consumers to use credit cards to manage their shortage in cash flow,” Siegfried says.
In addition, climbing interest rates are contributing to growing balances on credit cards nationwide.
Kassi Fetters, a certified financial planner and founder of Artica Financial Services in Anchorage, Alaska, says many people are struggling with changes in the economy that are making it more difficult to pay down credit card balances.
“Inflation rates are leveling out, but interest rates are still really high,” Fetters says.
TransUnion forecasts that consumer delinquencies related to credit cards are likely to increase through the fourth quarter of this year, according to Siegfried.
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Millennial Credit Card Debt Jumps
During the third quarter, millennials had the dubious honor of passing baby boomers and becoming the generation with the second-highest share of credit card balances behind members of Generation X, born from 1965 to 1980, who account for about a third of balances, TransUnion reported in November. Millennials, born between 1981 and 1996, now hold 29.3% of the total share of credit card balances, compared with 26.8% for baby boomers, born from 1946 to 1964.
Rob Schultz, an Encino, California-based certified financial planner and senior partner at NWF Advisory Services, says he has noticed more of his millennial clients struggling with credit card debt. “Millennials are choosing going out for a $16 cocktail over savings,” he says.
Schultz says millennials have seen some hard times — including both the Great Recession and the COVID-19 pandemic — and have decided that “living for the moment makes sense.”
Social media has also created a “jealousy effect,” that influences millennials to spend more, Schultz says. “Not everyone went to Capri last summer, but if feels like it to some.”
Steve O. Oniya, a Houston-based certified financial planner and president of OM Investments, has also noticed that millennials are struggling to manage their finances. He dubs them the “sandwich generation,” noting that many started their careers during the period bracketed by the Great Recession and the downturn that coincided with the pandemic.
“That affected rising earnings and other economic factors,” he says. “So there are plenty of pressures from a generation standpoint.”
However, Oniya emphasizes that rising debt is a problem not limited to millennials. A paucity of savings and a failure to prioritize long-term financial goals over short-term spending are at the root of the problem.
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Overcoming Credit Card Debt
Those who are deep in credit card debt need to take steps now to climb out of the hole, Fetters says. “Clients who have high-interest-rate credit cards need to start immediately researching routes to paying down their debt,” she says.
One way to keep debt problems from getting worse is to look for alternatives to high-interest credit cards. “Consolidation loans, family loans and lines of credit are always options for getting a lower interest rate on current debt,” Fetters says.
[Read: Best Debt Consolidation Loans.]
However, simply finding a way to lower the rate on debt is not enough. Once you do so, you must get at the root of your spending problem. Says Fetters, “You have consumer debt for a reason, and that reason needs to be fixed.”
Oniya says making a budget — and sticking to it — is crucial to climbing out of credit card debt. It is also important to reassess your goals and values related to spending, and maybe enlist the help of a professional. The right person may help you build efficient strategies for getting to where you need to be in terms of money, and will support your efforts to build a solid financial foundation. “Talk to a financial professional who can empathize, relate, offer accountability,” Oniya says.
Once your debt problems are under control, you should be in a better position to save. Schultz recommends making an ongoing commitment to putting away more cash. “My advice is to automate savings like a 401(k) and pause all discretionary spending until the cash reserves are adequate and credit cards are paid off,” he says.
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What’s the Average Amount of Credit Card Debt in the U.S.? originally appeared on usnews.com
Update 11/22/23: This story was published at an earlier date and has been updated with new information.
