Elements leading to the increase in household debt
Over the past five years, U.S. household debt has seen a swift upward trend, growing by $3.9 trillion from 2019 to 2023. This surge can be attributed to various intersecting difficulties and crises, including post-pandemic inflation, higher interest rates, soaring housing prices, and the escalating student loan dilemma. These factors have contributed to an unstable financial environment, leading more Americans to rely on credit cards for financial support.
After accounting for inflation, the debt levels in the first quarter of 2024 are a bit lower than those at the beginning of the Great Recession in the fourth quarter of 2008. Nonetheless, many consumers are experiencing financial pressure, with 8.9% of all credit card balances and 7.9% of auto loans becoming delinquent over the past year—the highest rate since 2010.
The overall count of credit card delinquencies surged by an astonishing 50% in 2023, indicating that U.S. consumers are finding it increasingly difficult to keep up with their debt payments. Though credit cards can appear to be a financial lifeline in difficult times, they represent the most costly method of borrowing money.
Based on Bankrate’s forecast for 2024, the average interest rate for credit cards is approximately 21%. In contrast, more manageable interest rates of 5-8% are available for mortgages, home equity loans, and auto loans.
While credit card debt significantly contributes to personal debt, mortgage debt has also exacerbated the issue of U.S. household debt.
Variations in credit card debt across different regions
The level of personal debt that consumers hold is influenced by factors such as income, spending habits, and geographical location. Federal Reserve data indicates that nearly 47% of credit card users carry a balance for at least one month, highlighting that credit card debt is a significant concern across the nation.
The states with the highest average credit card debts are consistent with high-cost regions: New Jersey is at the forefront with an average balance surpassing $9,900 as of the fourth quarter of 2023. Connecticut, Maryland, New York, and Massachusetts are also among the top states with significant average credit card debts.
On the other hand, states with lower average debts are mainly situated in the Southern region; Mississippi has the lowest average, at $956—80% less than New Jersey’s debt.
Oregon experienced the quickest increase in its average balance from the third to the fourth quarter of 2024, with a growth rate of 7.8%. Ted Rossman from Bankrate recommends opting for an interest-free balance transfer credit card to “halt interest accumulation for as long as 21 months.” Considering the ease with which these debts can escalate and negatively impact credit scores, it is essential to focus on reducing these balances.
