$1 Trillion in Credit Card Debt: How America Got Here
Money
Speaker 1: Do you pay off a credit card each month?
Speaker 2: No.
Speaker 3: I'm behind sometimes, but I try to.
Speaker 1: Americans passed a trillion dollars in credit card debt earlier this year, and the figure just keeps going up. Credit card debt levels have ebbed and flowed in recent years, but the more urgent problem is that the cost of carrying that debt has recently skyrocketed. The average credit card interest rate in 2021 was 14.6%. Two years later [00:00:30] it was over 21%, and many credit cards issued by retailers are pushing annual interest rates over 30%. That means if you're unable to pay the full amount each month, all that extra balance you're carrying goes up at these interest rates. If you only ever pay the minimum on your card, you'll end up paying substantially more than the original balance by the time it's all paid off.
Speaker 1: So let's break down why we could be carrying a credit card balance. [00:01:00] One reason is inflation. Rapid inflation in 2021 caused the price of many household items and groceries to go up faster than wage growth. Stretching family budgets to the brink and credit cards are now embedded into our phones and virtual lives through the advent of digital wallets. You don't even have to swipe a card anymore, just tap it or press a button or scan your face and you're done. Analysts think that by 2028, digital wallet transactions [00:01:30] will grow by more than 150%, but there's something else, and that has to do with how we think about money at its core. Personal finance is psychological and social. The way we spend is often an amalgamation of how we were raised, what we learned or didn't learn about money growing up, and our own thought patterns and behaviors. So what are some of these thought patterns? We went out on Hollywood Boulevard to find out [00:02:00] how many credit cards do you have? Just one?
Speaker 4: I have two, like five,
Speaker 5: Six. I probably have six or seven.
Speaker 4: Oh, at least
Speaker 1: 10. How many credit cards do you have?
Speaker 6: Only one.
Speaker 1: Terrific. So do you pay off your credit card balance each month? Do you pay off a credit card each month? Do you pay your credit card off in full each month?
Speaker 4: Yep, every month I try. Of course. [00:02:30] At least the minimum pay.
Speaker 1: Do you pay off your balance at the end of each month?
Speaker 6: Every month? I do, because I've been on the other side too. I learned it the hardly.
Speaker 5: I certainly benefit by paying off in full, getting a lot of the bonuses, the points, and it's kind of a six system that we've got in this country. To be honest, I personally think that I benefit from other people's inability to pay off their credit card.
Speaker 7: Credit cards are the best [00:03:00] way to spend. If you're sensible with it, and if you pay it off fully at the end of the month, make sure you pay it off at the end of the month in full, and then that's it. But if you don't, then yeah, so it can get you in a world of trouble.
Speaker 8: I think we shouldn't have to rely on credit cards in order to live each month. And I'm not talking about grandiose expenses, just basic everyday things.
Speaker 1: So what should you do? If you're facing high credit card debt, any debt payoff method that helps you stay on track is good, [00:03:30] but different strategies have different perks. There's the avalanche method in which you list your debts from highest to lowest interest rate. Pay the minimum on each, then put your remaining extra money toward the highest interest debt until it's gone. Repeat for each debt. There's also the snowball method in which you pay off your debts from smallest to largest. This strategy can be more motivating, but the avalanche method saves you more total interest. If you can't afford big enough payments to make a dent in your principal balance, that's [00:04:00] when some sort of debt consolidation method may make the most sense. A credit card can be a financial tool, but with interest rates at record highs, that tool right now is a double-edged sword. By taking a closer look at our own money behaviors and spending habits and making adjustments, we can start to lay groundwork for a better financial future. For more financial tips, follow CNET on YouTube and visit us@cnet.com.
