Most Americans are card-carrying members of a club in which the card is actually the problem.
At the end of 2015, the Federal Reserve released data on American credit card debt (this is called revolving debt, because you dont need to reapply for the loan), and the total came to $935.6 billion. As Bloomberg Business notes, this is number has grown $100 billion since 2011, but its still less than the $1.02 trillion Americans owed in 2008 before the financial crisis occurred. On average, an American between the ages of 18 and 65 has $4,717 of credit card debt.
According to CreditCards.com, the average credit cards interest rate is 15%. At the minimum payment of $189, itll take 10 years and a month to pay off that $4,717. The total payments would amount to $22,869. Thats a $18,155 cost for a very small loan.
American credit card borrowing may not be at its peak, but its still extremely high, and even more concerning is that the numbers dont seem to change very much over time. When the economy is hurting, borrowing is high. When the economy is booming, borrowing is also high. And no matter the situation, Americans seem to have credit card debt.
The Boston Fed recently released a study examining American credit card debt, and shed some light onto American credit card borrowing and why its so pervasive.
The biggest reason for such high debt, the study found, was high availability of credit. When someone is offering you credit, its hard to say no. Available credit appears to be the driving factor of debt in both the short and long term, the study says.
Only 35% of credit card users dont carry a balancethey pay off their bill every month, like youre supposed to. They use credit cards for convenience, and perhaps to generate bonus points and rewards, not because they need to borrow. If youre a member of this group, youre known as a convenience user. (Go ahead and pat yourself on the back for not being on the hook for high interest rates, but dont gloat.) The other, more typical credit card users are known as revolvers because they dont pay off their bills in full so the debt revolves. To them, credit limit increases are essentially invitations to spend more. Its unsettling: for revolvers, a 10% increase in credit is followed by a 1.3 percent increase in debt within one quarter and a 9.99% increase in debt over the long term, the study found.