Credit card debt in the United States rose during the fourth quarter of 2023, reaching $1.13 trillion, an increase of $50 billion, or 4.6%, from the previous quarter. Several factors led to this increase, including rising interest rates and inflation. Increased credit card debt means Americans will pay more in interest and have less discretionary income for financial goals such as saving for retirement.
Key Takeaways
- The average credit card debt in the U.S. is at an all-time high.
- It is influenced by factors such as interest rates, inflation, and individual spending habits.
- Credit card debt varies among different age groups and regions of the country.
- Strategies for paying down credit card debt include the debt snowball and debt avalanche methods, debt consolidation, and balance transfer credit cards.
Average Credit Card Debt in America
According to the Federal Reserve Bank of New York, Americans carried $17.5 trillion in debt as of the fourth quarter of 2023, of which $1.13 trillion is credit card debt. Mortgage balances account for another $12.25trillion of the total, while auto loans account for $1.61 trillion.
The average balance per cardholder reached an all-time high of $6,360 in the fourth quarter of 2023, according to the credit bureau TransUnion.
Interest rates on credit cards also rose, reaching an average annual percentage rate (APR) of 21.47% in the fourth quarter of 2023, a marked increase from an average APR of 15.05% in 2019. Higher interest rates can make it more difficult to pay off balances because more of the minimum monthly payment goes toward interest instead of the principal.
Credit Card Debt by Age
When examining credit card debt by age, Gen X carries the largest share at 33.8%. The remaining breakdown of credit card debt by generation is as follows as of Q4 2023:
- Millennials: 29.4%
- Baby boomers: 26.7%
- Generation Z: 6.3%
- Silent: 3.8%
In large measure, this reflects where each generation currently is in terms of their peak spending years.
Regional Variations in Credit Card Debt
When looking at credit card debt by state, Alaska has the highest average credit card debt at $7,863, and Iowa has the lowest at $5,227 as of the latest data, Q3 2023, according to the credit bureau Experian. Perhaps not surprisingly, Alaska has the 6th highest cost of living, while Iowa has the 9th lowest cost of living, which could account for some of the difference.
The remaining states in the top five for lowest credit card debt are:
- Wisconsin ($5,242)
- Kentucky ($5,304)
- West Virginia($5,348)
- Mississippi ($5,415)
The remaining states (and in one case, a district) of the top five for highest credit card debt are:
- Washington, D.C.($7,548)
- New Jersey ($7,401)
- Connecticut($7,381)
- Maryland ($7,282)
Strategies for Paying Down Credit Card Debt
When you're ready to pay down your credit card debt, there are several methods you can use to achieve your goal. These include:
Debt Snowball Method
With the snowball method, you pay off your smallest debt first by making minimum payments on your other credit cards and applying any extra money to the smallest debt. Once the first debt is paid off, you move on to the next smallest debt and repeat the process. Continue until all cards are paid off.
Debt Avalanche Method
Similar to the snowball method, the avalanche method prioritizes debt by paying off the card with the highest interest rate instead of the smallest debt first.
Debt Consolidation Loans
In debt consolidation, a personal loan provides a lump sum of money to pay off all of your credit cards. You then repay the loan via monthly payments for a set time period. Personal loans typically have lower interest rates than credit cards, which could save you money over the loan term.
Balance Transfer Credit Cards
Some credit card companies offer cards that allow you to transfer your balances from your other credit cards. They often come with low or even 0% interest rates on balance transfers for a certain promotional period, such as a year. Balance transfer credit cards typically charge fees based on the amount of money you transfer, but one could save you money in interest provided you pay off your balance before the interest rate increases.
Addressing the Root Cause of Credit Card Debt
To avoid taking on more credit card debt, it helps to understand why you have credit card debt in the first place. Many people use credit cards to cover their everyday expenses when their income is not sufficient to pay the bills. Others may overspend even when they know they don't have the money to pay off the debt anytime soon. Therefore, it's important to create a plan to pay off credit card debt and to limit new debt going forward.
Create a Budget
Listing all of your expenses provides a clear idea of what you have to pay each month. To create a budget, break down your monthly take-home pay to see how you can pay all of your fixed expenses (housing, car loan, etc.) as well as your variable expenses (groceries, credit card bills, etc.). Using debt payoff apps can help you organize your debts and create a repayment plan.
Try to Negotiate Lower Interest Rates
If you're having trouble keeping up with your credit card payments, don't hesitate to contact your card issuers and ask if they can lower your interest rate. While they may not lower the interest rate for the life of the account, they might lower it in the short term to help you pay down your balance.
How Does the Average Credit Card Debt in America Compare to Previous Years?
Average credit card debt in the U.S. has continued to increase since 2020. In Q4 2020, the average credit card debt per borrower was $5,103. As of Q4 2023, it was $6,360.
Are There Any States With Particularly High or Low Average Credit Card Debt?
According to the latest data, average credit card debt in the 50 states and Washington, D.C. ranges from the low $5,000s to the high $7,000s. Alaska has the highest average credit card debt at $7,863, while Iowa has the lowest at $5,227.
What Are the Potential Drawbacks of Consolidating Credit Card Debt With a Personal Loan?
Taking out a personal loan to consolidate credit card debt could temporarily lower your credit score in a minor way, in part because the lender will most likely do a hard inquiry on your credit file. However, your credit score should rebound as you make on-time payments on the loan.
Note also that after you've paid off a particular credit card it can be beneficial to your score if you keep that account open—even if you don't plan to use the card again. That's because your credit score considers your credit utilization ratio (the amount of revolving credit you have available to you compared with the amount you are currently using) as well as the average age of your credit accounts.
The Bottom Line
Americans' credit card debt has increased dramatically over the past year. In fact, average credit card debt per consumer has hit an all-time high. Reining in credit card debt and managing it effectively will help you live within your means and free up money for such financial goals as saving for retirement and paying for large expenses such as a new car or college tuition.
