Financial analyst shares insight into US credit card debt and how to fix it

SALT LAKE CITY (ABC4) – Recent coverage has given much attention to the national economy, covering topics such as interest rates, housing markets and the government deficit. However, the average American worker is more likely to suffer from the burden of personal credit card debt.

ABC4 spoke to Ted Rossman, Senior Industry Analyst at Bankrate.com, about the New York Federal Reserve Bank’s report on US credit card debt. The report includes all credit card debt for the first quarter of 2022.

Rossman expected total credit card debt in the US to increase, but was surprised that the report showed a slight decrease in total debt since the fourth quarter (Q4) of 2021. He reports that Americans had a total of $841 billion in credit card debt as of Q4 2021. That number has fallen to $770 billion for Q1 2022, according to the New York Federal Reserve Bank report.

Rossman formulates these findings by discussing how the fourth quarter of 2019 held the record for the nation’s highest overall credit card debt and how the COVID-19 pandemic likely explains the steady decline in credit card debt through the fourth quarter of 2021. He says people have been spending less during the pandemic and reported paying off some of their credit card debt with federal stimulus money. “The real anomaly is how much credit card debt has gone down during the pandemic,” Rossman says.

Eased COVID-19 restrictions likely caused credit card debt to surge in the fourth quarter of 2021, on top of the usual higher spending trends in the fourth quarter of most years, Rossman says. He said he expected that trend to continue in the first quarter of 2022 and was surprised it didn’t. “Balances are still higher today than they were a year ago,” Rossman says, commenting that recent trends represent a plateau in credit card debt rather than a significant decline.

“People tend to pay off credit card balances in the first quarter of every year,” Rossman continues, noting that the recent drop in total credit card debt is something that typically happens every year.

Rossman notes that the 2008 financial crisis can be a good indicator of how U.S. credit card debt trends have changed during COVID-19 and how they may evolve going forward. He says the crisis took “five years to find the bottom of total credit card debt,” and another five years to climb to the 2018 highs, and 2019 is just the beginning of the upturn in total national credit card debt.

As for why credit card debt in the US is a compelling statistic, Rossman says it can provide insight into overall consumer spending and the health of the economy. “Things can feel really bad right now,” Rossman says of high interest rates and high debt, but he says high credit card debt can also indicate increased spending by consumers who are benefiting from a terrific job market. In short, he says, in a way, high levels of national credit card debt can show an economy recovering from a crisis.

Rossman recognizes the tremendous burden of credit card debt on many US households. “Those with average credit card debt in the US will probably take 16 years to pay off their debt at high interest rates,” says Rossman.

He proposes several solutions for households suffering from high credit card debt.

Aside from all payments being made on credit card balances, people should consider taking out low-interest bounce-back loans or 0% balance transfers to pay off their debts at a lower interest rate.

According to Rossman, most people with a credit score above 670 should be eligible for this type of loan. Otherwise, Rossman suggests seeking help from a nonprofit credit counseling firm like Money Management International.

About Stephanie McGehee

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