Credit card debt is one of the most difficult financial obstacles to overcome – interest rates are high, minimum payments barely scratch the surface of the actual debt, and it's just so, so easy to fall into the trap you set for yourself whenever you use your credit cards without having a real plan for paying them off. Unfortunately, the ugly truth about credit card usage has only gotten uglier in the past few years. Not only have interest rates risen, but credit card use itself has tripled, and there doesn't appear to be an end in sight.
Here are just a few of the down and dirty truths about credit cards and the debts we carry… and you might be surprised at just how much you don't really know!
1. Nearly Half of the Population is in the Same Boat You Are
That's right, you're not alone. Nearly half (46%) of all adults carry a balance on their credit cards from month to month, and since interest rates rarely drop, we're all paying a premium for those purchases we made on that card.
2. It Takes Years to Pay Off Some Balances
If you're like most people, and there are months when you can only pay the minimum payment, it can be very difficult to pay your credit card balances in full, ever. For example, if you carry $3,000.00 in debt, at 17% interest, over time, your interest charge can easily amount to another $3,000.00. That's DOUBLE your initial balance – take a look at how much of your monthly payment actually goes toward the principal. You might be sick.
3. Americans Aren't Paying Off the Balances
Even though we're really good at spending money, it turns out we aren't nearly as good when it comes to paying the balance off. In fact, for every dollar on average that we pay off, we're adding another $2.65 in new debt. It doesn't take a genius to figure out that this cannot continue indefinitely.
4. The Average Household Credit Card Debt Is $5,700
Even though the overall economy has improved significantly, the average household still carries around $5,700 in credit card debt, and are still unable to pay off much of that debt.
5. Interest Rates Are Not Coming Down
Even though the economy has improved, and mortgage rates, car loans, and other types of loans have low interest rates right now, most credit cards average at or above 16% interest. Make just one late payment, and that can jump to 30% (or higher).
6. Just One Late Payment Will Damage Your FICO Score
Even though it's better to pay late than not at all, making just one payment that is more than 30 days past the due date can really harm your credit score for a very long time. Payment histories stay on your credit report for up to seven years and can cause your score to drop significantly.
7. Baby Boomers Have the Least Amount of Credit Card Debt
Perhaps it's because baby boomers are aging, but the least amount of credit card debt belongs to the Baby Boomer Generation, while Gen X owes the most. Born between 1967 and 1981, the average Gen Xer holds a credit card balance that is nearly $8,000. Even more telling, credit scores have historically dropped lower with each successive generation, meaning the successive generations will likely carry a larger balance than the Gen Xers.
8. 20% Of Americans Have More Credit Card Debt Than They Have In Savings
Even though it's recommended that we all build an emergency fund that will cover three-to-six months of living expenses, most people have less than $1,000 in savings, and another 12% don't have any emergency savings at all. That means an emergency can quickly put most people into credit card debt.
9. Women Carry Less Debt Than Men
Even though women are the "shoppers," men actually carry more credit card debt, coming in at an average of $7,407 vs. women, who carry about 22% less, or $5,245.
10. Most of Us Will Die Carrying Credit Card Debt
Approximately 65% of Americans will owe credit card debt up to the day we die. That’s more than those of who are not expected to leave this earth without a mortgage. The average debt, which is more than $4,000, also leaves a legacy that family members have to deal with.
In closing, understand that credit card debt is an ugly problem that we Americans have yet to take control of in our own lives. But, it doesn't have to be the norm – not if you take action now. Control costs where you can, pay as much as you can on those balances, and stop the cycle before you find yourself struggling.