What Is Credit Card Debt?

If you’re reading this, it’s safe to say you have at least one credit card. It may be your first card and you’re trying to start on the right foot, or you may have had credit cards for years and are trying to reduce your debt. No matter where you are in your financial life, you can improve your standing by taking note of a few simple tips.

If you’re in good standing with your creditors, stay on solid ground by paying on time and making more than the minimum payment. If you've already fallen behind or can’t pay your bills, you can take action to remedy the situation by contacting creditors, undergoing credit counseling or using debt reduction strategies.

CREDIT CARD DEBT & STATISTICS

Americans have created billions of dollars worth of debt over the past 45 years, and credit card debt has been an important part of that. Credit card debt dove -along with consumer spending- during the 2008 financial crisis and slow growth has kept total revolving debt at pre-crisis levels, though it is creeping up. According to figures from the Federal Reserve, total U.S. outstanding consumer debt was $3.24 trillion as of July 2014. That figure includes car loans, student loans and revolving debt, but not mortgages. Total U.S. outstanding revolving debt, which is chiefly made up of credit card balances, was $880.5 billion as of July 2014.

Source: Federal Reserve historical data

Average credit card debt

Just how much credit card debt belongs to the average American depends on how you define credit cards and count the card-carrying population.

$1,098 per card that doesn't carry a balance

$1,648 per account, U.S. adults with a credit report and Social Security number

$3,600 per person, U.S. resident adults

$5,234 per person, excluding unused cards and store cards

$5,596 per U.S. adult with a credit card

$5,700 per household with credit card debt

$7,743 per card that usually carries a balance

The amount of average credit card debt has been steadily increasing over the long term. A person born between 1980 and 1984 has on average $5,689 more in credit card debt than his or her parents (those born between 1950 and 1954) at the same stage of life and $8,156 more in credit card debt than his or her grandparents (those born between 1920 and 1924).

But the Great Recession reversed the growth trend -at least for a few years. According to TransUnion, between the first quarters of 2008 and 2014, average credit card debt per borrower fell from a high of $6,276 in mid-2008 to $5,164 in Q1 of 2014 -the lowest point in the six-year period. Average credit card debt per borrower began to creep up again in Q2 2014, reaching $5,234.

COUNSELING & DEBT MANAGEMENT PLANS

If making consistent and timely credit card payments is a regular hardship, you may benefit from professional help. Credit counseling and debt management plans can help you get back on track.

Credit counseling can steer you in the right direction after you've taken a few wrong turns. An experienced credit counselor can look over your finances and current situation and then help you make a plan to move forward. He or she can help you set up a household budget, savings plan and payment plan for current debts. Your counselor can also gauge if you need more help.

Among your counselor’s suggestions may be enrollment in a debt management plan (DMP). A DMP is best suited for people who can afford their monthly payments but lose track of bills or forget to pay on time. When you enroll in a DMP, you’ll be responsible for just a single payment each month. Rather than paying credit card companies directly, you’ll send money to your credit counselor, who will then disburse the money to your various creditors. This can simplify your monthly bills and may be able to save you money in interest and fees.

CONSOLIDATION & SETTLEMENT

Consolidation and settlement are more involved approaches to dealing with too much debt. While they require significant planning and commitment, they can help you out of a tough situation when you have too much credit card debt.

Consolidation rolls all your debts into one payment. As with a DMP, it reduces your number of monthly payments. Consolidation may also have the benefits of lowering your interest rate and improving your repayment schedule.

Settlement is a good option for individuals who can’t afford the credit card debt they’ve racked up. You can enlist the help of a debt settlement firm or negotiate directly with lenders to have your debt reduced. When completed successfully, you may owe only a fraction of your original debt.

Credit cards can be useful when used properly. They’re convenient and can improve your credit history. However, misusing or overusing the line of credit can have lasting negative consequences. It’s important to use credit cards wisely and seek help when you need it.