Americans are Spending More on Credit Card Interest
In the world of personal finance, credit cards have been a divisive subject. While there are sites dedicated to the benefits of credit cards including travel rewards and cash back, there are those (perhaps most notably Dave Ramsey) who rail against such products because of the high interest rates they carry. Now the latter group has even more statistical ammo for its arsenal as new data shows that Americans are not only spending more in credit card interest but the level they’re paying has increased by nearly 50% in the past half decade.
According to a study by MagnifyMoney, credit card balances are currently at an all-time high, hitting $1.03 trillion in January. As a result Americans paid a total of $113 billion in credit card interest last year, marking an increase of 12% from 2017 when interest payments totaled $101 billion. What’s more, it looks as though this figure will increase once again, with Magnify currently anticipating a $122 billion grand total for 2019.
Amazingly the amount of credit card interest Americans paid has increased by 49% over the past five years. Part of that trend that can be attributed to rising interest rates. Currently MagnifyMoney says the average credit card APR is 16.86% — which marks a four-point increase over five years ago.
This reality is exacerbated by the number of Americans who fail to pay off their credit card balances each month. The latest study found that 43.8% of credit card accounts aren’t paid in full each month. Additionally these accounts represent 71% of total balances. Similarly, of the 176 million Americans that actively use credit cards, 70 million carry balances from month to month.
On the other hand, 30.4% of credit cardholders use their cards but pay off their balances in full each month. Meanwhile another 25.8% have cards they don’t actively use. In other words the majority of Americans are seemingly using their credit responsibly.
Regardless, the trends observed in this latest report do offer cause for concern. Although the amount of debt and interest Americans are collectively incurring is bad enough on its own, it’s also worth noting that this increase is occurring during economically prosperous times. Were the U.S. to slip into a recession any time soon, these outstanding balances could quickly cause crisis. Hopefully these developments can still be turned around and more consumers will begin using credit cards to their advantage instead of to their detriment.