Economic News

Bankrate Study Finds Credit Card Debt Rising, Emergency Funds Falling

We’ve often heard frightening statistics about how few adults could cover an unexpected expense of only a few hundred dollars. Additionally the amount of credit card debt Americans hold has topped $1 trillion in recent years. Now a new survey by Bankrate has some more bad news: the percentage of those whose debt outweigh their savings is on the rise.

In a survey conducted earlier this year, Bankrate found that only 44% of respondents said they had more cash in their emergency funds or other savings than they had in credit card debt. That’s down significantly from last year when 58% said the same. Similarly those who reported that their credit card debt was larger than the amount they had in savings rose from 21% in 2018 to 29% this time around. Meanwhile those who said they had no debt nor savings increased six percentage points to 18% and slightly more people surveyed (9% in 2019 versus 8% last year) declined to answer the question or didn’t know the answer.

Not only does it seem as though fewer Americans are retaining emergency funds but it also appears as though fewer even find them to be a priority. Asked whether paying down debt or building up their emergency fund was more important to them in 2019, 43% chose the latter — down 10 points from last year. However, even with the tumble, it still exceeded the 41% of respondents who were focusing on their debt first. Finally, while 3% said they weren’t prioritizing either in 2018, that figure rose to 9% in this year’s study.

What’s odd about these trends is that they come at a time when the economy is still performing well. As Bankrate’s chief financial analyst Greg McBride notes, “Consumers should make hay while the sun shines. Now is the time – with unemployment low and wages rising – to right-size the equation by paying off high-cost credit card debt and adding to emergency savings.” He concluded, “Sadly, it looks like we’re collectively moving in the wrong direction.”

Further commenting on the study’s findings, McBride said, “The sharp deterioration in the relationship between credit card debt and emergency savings – with an increasing number of households having more credit card debt than emergency savings and a decline in those with more emergency savings than credit card debt – is an ominous indicator of the financial health among American households.” While that may be true, it’s important to mention that this survey only questioned 1,004 people, which is a relatively small sample size. Still this latest survey does serve as a reminder that having an emergency fund can be abundantly important for preventing debt and financial hardship. Hopefully the current economic conditions will last long enough for Americans to reverse this trend before things get any worse.

Also published on Medium.

Other Articles by Jonathan Dyer