There are over 300 million credit cards currently issued in the United States. That's more than 1.3 for every adult in the country. Seen as “easy credit” by the majority of the population, these 3×2 inch pieces of plastic account for a sizable portion of the US national debt and for the majority of the average America household debt, as this infographic on credit card debt in the United States show.
Credit Card Debt in the United States
America’s Credit Card Dependence
There are, for all intents and purposes, five types of personal debt which affect most Americans. Many Americans have a mortgage. Most have a car loan, or other vehicle debt. The average American owes around $47,000 in student loans. And, a majority of American adults owe “other” types of bills, whether these be medical debts, taxes, or anything else.
Finally, there’s credit card debt. As this infographic shows, the average American adult owes almost $16,000 in credit card debt, whether that be current, revolving credit or accounts which have been closed and are sold to collections agencies.
Compare that with the typical $27,755 Americans owe on financed vehicles, and you can see that credit cards have become almost a way of life for the average American adult.
What is it about credit cards that’s so appealing to American consumers?
Simply put, some Americans view credit cards as “free money.” And while a majority of credit card consumers do fully intend to repay credit card debt, this isn’t always facilitated by the banks issuing the cards.
Credit Cards: A Different Kind of Debt
For most types of debt, there are consequences to not paying the bills. If you don’t pay your rent, you’re evicted. If you don’t make your mortgage payments, you may face foreclosure. Miss a few auto payments? Your car will be repossessed. Even debts like taxes and student loans mean serious trouble if you start missing payments. Your bank account or your paycheck could be garnished, for instance.
What happens if you miss a few credit card payments? Not much, in the short term. There’s very little tangible and immediate consequence. Sure, you may face the embarrassment of your card being declined on a date, but the stereo you bought using that same card isn’t very likely to be taken away from you.
Unfortunately, it’s because there’s no immediate consequence for a failure to pay the bills that credit cards are mistaken for “free money.” In other words, some consumers perceive it as an extension of their income. They may pay the minimum balance, or they may miss a payment here and there. But once that $1,000 credit limit is issued, the consumer thinks of it as his own money.
That’s exactly where credit card debt begins: a lack of understanding that the money borrowed must be repaid.
How Does Credit Card Debt Become a Problem?
We’ve already mentioned that credit cards are very appealing to the average consumer. That’s particularly true when credit cards are issued with special introductory offers. For example, some credit cards will offer 0% APR for the first 6, even 12 months. After that, you’ll pay upwards of 19% APR if your credit isn’t great.
People who don’t have good credit (or even people who do) may jump on the opportunity to carry a card like this. The interest is low, or nothing at all. The card allows them a little financial wiggle room to pay bills, or to buy groceries. And the credit limit is sometimes set low, initially. A $500 credit limit is manageable for most Americans who qualify for a credit card.
After time, it’s possible a consumer might miss a payment. Then two. Suddenly, an emergency comes up, such as a medical bill or a vehicle repair. A few more payments are missed.
Fortunately for the consumer, there have been enough on-time payments that either the credit limit on that $500 card might be raised, or the consumer could simply apply for more cards. A wallet full of cards. Interest rates go up, so the minimum balances become more and more unwieldy. Before long, that wallet full of cards amounts to the average of $16,000 in debt.
Of course, the average American has many more bills to pay than just the credit card statement! Most people will make their rent or mortgage payment first, then their auto, and the credit card bill becomes almost an afterthought. It’s a slippery slope from carrying a card for a little financial flexibility to being in over your head with credit card debt.
Should You Avoid Credit Cards?
If the path from one credit card bill to thousands of dollars in debt is so short, doesn’t it make sense that you shouldn’t carry a card at all? No! We’re not telling you that at all. In fact, credit cards can be invaluable tools.
Having a credit card in your wallet with a few hundred dollars available is a godsend should you have an emergency expense. A credit card, when used and paid responsibly, can help to improve your credit score. That, in turn, can help you qualify for better rates on mortgages or auto loans.
There are benefits that you may not even have thought of, either. Purchases made with a credit card may offer cash back, or buyer protection. Those little cards are also sometimes necessary even to book a hotel room or an auto rental.
Remember that credit cards are a different kind of debt than most. A failure to pay your credit card bills can have seriously adverse effects on your credit score, and that may even impact your ability to find a job, or a place to live. There aren’t many immediate consequences to missing payments; the consequences are much more long term.
So, is carrying a credit card a sure-fire way to become an American credit card debt statistic? Absolutely not. When used responsibly, credit cards are very useful, and quite beneficial. Know your monthly budget, and pay your bill each cycle. Use your card in case of an emergency, and don’t be tempted by offers that seem too good to be true. Using credit cards the right way can keep you from becoming one of the thousands of Americans who owes big bucks to the credit card companies.