The average credit card balance in the U.S. has hit a record of $6,360, a 10% increase from a year ago, according to a new report by TransUnion. The total credit card debt also reached a historic $1.13 trillion in the last quarter of 2023, the Federal Reserve Bank of New York reported on Tuesday. These figures indicate that more Americans are relying on credit cards to cope with rising prices and stagnant incomes, but they are also facing difficulties in paying them back.

Credit card delinquencies surge amid inflation and pandemic

One of the alarming signs of the credit card debt crisis is the rising delinquency rate, which measures the percentage of borrowers who are 90 days or more past due on their payments. According to TransUnion, the credit card delinquency rate reached 2.8% in the fourth quarter of 2023, the highest level since 2009. The New York Fed also reported that credit card delinquencies surged more than 50% in 2023, compared to 2022.

The increase in delinquencies reflects the financial stress that many consumers are facing amid the ongoing inflation and pandemic challenges. The consumer price index, a key measure of inflation, rose 3.4% in December 2023 from a year ago, down from a peak of 9.1% in June 2022, but still higher than the historical average of 2%. The pandemic also disrupted the labor market, with the unemployment rate at 5.4% in January 2024, up from 3.5% in February 2020, before the outbreak.

Consumers turn to credit cards as other options dwindle

Despite the high interest rates and fees that credit cards charge, many consumers have no choice but to use them as a source of financing, especially when other options are limited or unavailable. According to TransUnion, the number of credit card accounts increased by 3.7% in the fourth quarter of 2023, reaching 496 million. The average credit limit also rose by 4.2%, reaching $6,900.

Consumers turn to credit cards for various reasons, such as paying for everyday expenses, covering emergency costs, or taking advantage of rewards and benefits. However, some consumers may also use credit cards as a substitute for other types of loans, such as personal loans, student loans, or mortgages, which may have stricter eligibility criteria, lower availability, or higher costs. For example, the average interest rate for a personal loan was 12.9% in December 2023, according to Bankrate, while the average interest rate for a credit card was 20.74%.

How do I manage my credit card debt and avoid delinquency?

Credit card debt can quickly spiral out of control if not managed properly, leading to serious consequences such as damaged credit scores, increased fees and penalties, collection actions, or even bankruptcy. Therefore, consumers need to take proactive steps to reduce their credit card debt and avoid delinquency. Some of the strategies that experts recommend are:

• Make a budget and track your spending. This can help you identify where your money is going and how much you can afford to pay towards your credit card debt each month. You can use apps, spreadsheets, or online tools to help you create and follow a realistic budget.
• Pay more than the minimum. The minimum payment is usually only a small percentage of your balance, and it may not even cover the interest charges. By paying more than the minimum, you can reduce your balance faster, save on interest, and improve your credit score.
• Prioritize your debts. If you have multiple credit cards or other debts, you should prioritize them according to their interest rates, balances, or due dates. You can use the avalanche method, which focuses on paying off the debt with the highest interest rate first, or the snowball method, which focuses on paying off the debt with the lowest balance first. Either way, you should always pay at least the minimum on all your debts and avoid missing any payments.
• Negotiate with your creditors. If you are struggling to make your payments, you may be able to negotiate with your creditors for a lower interest rate, a longer repayment term, a lower monthly payment, or a settlement offer. You can contact your creditors directly or work with a reputable credit counseling agency or debt settlement company to help you with the negotiation process.
• Seek professional help. If you are overwhelmed by your credit card debt and cannot manage it on your own, you may need to seek professional help from a credit counselor, a debt management plan, or a bankruptcy attorney. These options can help you consolidate your debts, reduce your interest rates, or eliminate your debts, depending on your situation. However, they may also have some drawbacks, such as fees, an impact on your credit score, or legal consequences, so you should weigh the pros and cons carefully before choosing one.

Credit card debt is a serious problem that affects millions of Americans and their financial well-being. By being aware of the causes and consequences of credit card debt and taking action to reduce it and avoid delinquency, consumers can improve their financial health and avoid falling into a debt trap.