How Credit Card Debt is Changing

The pandemic put tremendous financial pressure on people. With people getting laid off and rising unemployment during the COVID-19 crisis, credit card debt increased. However, people have learned to adjust and even make progress with paying off their credit card debt with time. The average credit card debt in the US declined in the second year of the pandemic. Having a credit debt can be pretty stressful. The exorbitant rates of interest cost a lot of money and time. Furthermore, high credit debt hurts your credit score even if you are making timely payments.

The credit card debt of the average American witnessed a continuous decline in the first quarter of 2021. In the same year, consumers had an average of three credit cards, and the average credit balance was $5,525, which is $1000 less than the average in 2019. Additionally, the average credit utilization also declined for the second year in a row. This change corresponds with the drop in average credit card balance. Low utilization of credit has improved the credit scores of US adults. In 2021, the average official FICO score was at an all-time high of 716 due to declining debt levels. The average credit utilization in 2019 was 30%, 2020 was 26%, and 2021 was 25%.

Age-Wise Average Credit Debt

As discussed earlier, the average credit card debt in the US dropped to $5,525 in the year 2021. However, this was not uniform across different age groups. According to Experian data, Gen X had the highest average credit card balance of $7,236, while Gen Z had an average credit card balance of $2,312. While having the highest credit card balance, Baby Boomers had the second-lowest credit utilization rate. The lower your credit utilization rate is, the better your credit score will be. This suggests that Baby Boomers had significantly higher credit limits than other age groups. Baby Boomers had the highest average credit score of 724 points in 2021.

State-Wise Average Credit Debt

The credit spending across all US states was not uniform in any way. Different states had different levels of credit balance. Alaska had the highest average credit card debt of $7,089, while Wisconsin and Iowa had the lowest average credit debt of $4,587. Often the states with high credit debt correspond to high living standards, though it is not always the case.

Retail Credit Card Debt

Besides traditional credit cards, US adults also had an average of 2.3 retail store credit cards in the year 2021. A retail credit card is similar to general credit cards but is only accepted by a specific retail brand. The average retail credit debt of Americans in 2021 was $1,888. This debt is in addition to the traditional credit card debt discussed above.

Nationwide Statistics

There were projections that the credit card debt would continue to decline in the last quarter of 2021; however, the Federal Reserve reported an increase in America’s total credit by $52 billion in Q4. This hike represents the highest quarterly increase in debt in the last 22 years. However, the debt levels in 2021 were still less than what they had been in the last years.

How to Pay Your Credit Debt in 2022?

Being critical financial tools, credit cards are an important part of our lives. They help users to earn rewards on purchases, maintain their credit score and protect them from fraud. However, if you plan to use credit cards, make sure to pay your full balance each month. This will save you from paying high-interest rates. Here are a few ways how you can pay your credit card debt:

1. Make a Budget

The key to reducing credit card debt is maintaining a regular budget for your expenses. If you are exceeding your credit card amounts more than you can afford to pay back, you need to cut down your spending. It is not required for a budget to be absolutely restrictive; rather, it should be the blueprint that helps you spend according to your earnings and prevent you from paying exorbitant interest rates.

2. Making a Debt Payoff Plan

Once you have your budget, you need to make a credit debt payoff plan to pay back your debt. Create a realistic plan that matches your earnings, savings, and account balance. Do not get too ambitious. There are several approaches to paying back your debt. Some lenders offer attractive low-interest loans that can help you pay back your credit debt in case of financial emergencies. You need to find the one that aligns with your financial goals, needs, and situation.

3. Reduce your Spending and Expenses

During the pandemic, many Americans made considerable cuts to their everyday expenses. A recent survey reveals that around 46.54% of Americans changed their spending habits to survive during the pandemic. Most people spent less money on travel, dining, clothing, grooming services, and shopping. You need to lower your expenses to avoid creating a new line of debt.

This is not an all-comprehensive list of how you can reduce your credit debt. There are several measures you can take. However, you must create a personalized plan that suits your needs and financial expectations. Americans are already making progress with paying off their credit debt; they just need to keep going the extra mile to pay off their debt in full.

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