Americans are carrying more credit card debt than ever before, and financial experts say high interest rates are making it increasingly difficult for borrowers to get ahead.
According to the Federal Reserve Bank of New York, Americans owe about $1.25 trillion in credit card debt, while total household debt has climbed to a record $18.8 trillion.
Credit card delinquency rates also remain elevated, a sign that many families are struggling to keep up with payments.
For Shanika Hampton, the debt started after an unexpected layoff.
“I was making the minimum payments, but with credit card debt and interest, the minimum payment isn’t really much, especially if you’re still using the card,” Hampton said. “You’re accumulating that interest.”
She compared the experience to trying to stay afloat while constantly falling behind.
Hampton said she wasn’t using credit cards for luxury purchases. Instead, she relied on them to cover necessities after losing her job.
“I was buying necessities, like real deal emergencies,” she said. “It started out small. Maybe a $25 grocery order. But once you realize you’ve really fallen behind, you end up using credit cards for real emergencies… groceries, gas, even bigger purchases.”
Today, Hampton has paid off about $9,000 in credit card debt over the past year and a half with the help of nonprofit credit counseling agency Money Management International. The agency consolidated her debt into one monthly payment and negotiated lower interest rates with her creditors.
She still has about $5,000 left to pay.
“They’ll negotiate the interest rates down, and they also negotiate a monthly payment that is doable,” Hampton said.
Certified financial planner George Pakounis with Burns Estate Planning and Wealth Advisors said inflation is only part of the reason Americans are falling deeper into debt.
“We live in a FOMO, fear of missing out, society,” Pakounis said. “Credit cards bridge that gap of, ‘If I can’t do it, what can it allow me to do?’”
He said the convenience of credit cards has also made consumers less aware of how much they’re spending.
“We’re not as conscious of how we buy things anymore,” he said.
Pakounis said while rising grocery prices and other living expenses are forcing some families to rely on credit cards, using them to make ends meet is only a temporary fix.
“Supplementing with a credit card is still a Band-Aid,” he said. “I think it comes down to priorities. What is more important? Is it more important that I have this Netflix subscription or the bread that I want? I’m not saying that’s a fair choice, but those are the decisions many families are facing.”
Instead of focusing only on making larger payments, Pakounis said consumers should first understand exactly where their money is going.
“The issue is those minimums will keep you in debt potentially forever if you don’t pay attention to it,” he said. “Take a step back. Look at where your money’s going. Look at how much you’re spending so you can create a strategy for paying it off.”
He recommends three steps for anyone trying to eliminate credit card debt:
- Track every dollar you spend.
- Create a payoff plan, whether that’s paying off the highest-interest balance first or starting with the smallest balance to build momentum.
- Once you’re out of debt, stick with those same spending habits to avoid falling back into the cycle.
Pakounis also said people shouldn’t ignore savings altogether. If someone has an extra $500 each month, he recommends putting most of it toward high-interest credit card debt while setting aside a small emergency fund.
“Maybe put $300 or $400 toward the debt and save $100,” he said. “That way, when the next emergency comes up, you don’t have to put it right back on the credit card.”
Financial counselors say people who are overwhelmed by debt should seek help sooner rather than later.
Many nonprofit credit counseling agencies offer free or low-cost budgeting assistance, debt management plans and creditor negotiations that can help borrowers lower interest rates and consolidate payments before their debt spirals further out of control.