Anticipation is building over the next round of $1,400 stimulus checks. For many, a portion of their relief money may go straight into paying down credit card debt.
Over 45% of U.S. families are still battling credit card debt, says LendingTree’s Value Penguin.
Although Americans’ card debt has dipped during the pandemic — as folks cut spending and follow stay-at-home orders — households are still carrying $6,270 in credit card debt on average.
If you take the following shocking credit card statistics into account, it’s no surprise many families are holding out for more stimulus relief from President Joe Biden.
1. Card limits total nearly $4 trillion
In May 2020, the Federal Bank of New York reported that Americans have been issued credit card limits totaling $3.93 trillion. Consumers had $893 billion in balances, with $3.04 trillion in credit available.
The numbers trend lower according to income, of course. In low-income zip codes — where annual income was below $45,000 — the median credit limit for a borrower to dip into is just $1,900.
Lower limits in these areas trace back to the debt-to-income (DTI) ratio of a household — which matters when you apply for more credit or loans. Lenders want to see whether you have the earnings to pay off your debts and a lower DTI ratio will get you better interest rates and faster approval as well.
Keeping track of your credit score is important, especially if you plan on applying for major lines of credit or loans in the future for things like a house or a car. Try a free online service that offers credit monitoring and personalized product recommendations.
The more credit you use up and the more debt you take on without upping your income, the higher your debt-to-income ratio is likely to be.
If you’re finding it difficult to shear your expenses, there are plenty of ways to boost your earnings.
The pandemic has given many people the chance to learn new skills or take up new hobbies as they try and find ways to be productive while under public-health restrictions.
If you are looking for ways to earn extra cash while you wait for the next stimulus check, consider working on a side-gig that can help pass the time and boost your finances.
2. Americans owe $807 billion in credit card debt
Credit card debt dropped from $881 billion in 2019 to $807 billion in 2020, LendingTree’s Value Penguin reports. It’s the first time any sort of debt has dropped since 2013 — due to decreased consumer spending during the pandemic.
This doesn’t necessarily mean Americans should take a seat back and relax, though. Just under half of U.S. households carry some sort of credit card debt and it’s not just lower-income households carrying debt. The report showed the higher the median annual income, the higher the average credit card debt. Higher-income households owe around $12,600 on average.
If your debts are getting too unwieldy to manage, consider applying for a debt consolidation loan as the country waits for the next round of pandemic relief. By rolling all your debts into one, you don’t have to worry about keeping track of different payment cycles and interest rates.
3. Americans have 4 credit cards on average
While four credit cards may not sound like a lot, those balances and fees add up. If you lost your job or had your hours cut due to the pandemic, it can be hard to keep up with your payments — even if you don’t add to your balances.
Having two to three cards is probably best, especially when it comes to keeping track of payments and accumulating interest.
With multiple cards, you risk overspending or missing payments and tanking your credit score. On the flip side, if your accounts are inactive for too long, your issuer could end up closing them — which will hurt your credit score as well.
If you don’t know what your credit score is, you can check it for free.
4. Millennials and Gen Z have the lowest credit scores
The average U.S. FICO credit score was 711 in 2020, a 5 point increase from the previous year. However, millennials and Gen Z have the lowest scores, at 674 and 680 respectively, according to Experian data.
This could partially be attributed to their lack of credit history. Young millennials and older Gen Zers are fresh out of college and likely don’t have as many credit cards, compared to older generations.
Student loan debt could also be playing a role in the financial plight of the two generations. As the pandemic continues, President Biden has extended the student loan freeze to help borrowers as student loan forgiveness is mulled over by the government.
It might be a good time to consider refinancing your student loans to help lessen the load you have to carry through the ongoing crisis.
Every little bit helps so make sure you deduct the interest you paid on your loans when you file your taxes this year.
5. The average APR for card accounts is almost 15%
As of November 2020, the Federal Reserve says the average credit card interest rate is 14.65%. On credit card accounts that were assessed interest, the average APR is a bit higher, at 16.28%.
Generally speaking, the lower your interest rate is, the better, but banks typically offer credit card interest rates between 12% to 24%. If you have a good credit history and pay all your bills in full on time, you’re more likely to get a better rate.
Make sure you research different options to make sure you get a credit card that best suits your lifestyle. A balance transfer credit card, for example, may have 0% APR to help pay down debt.
If you’re struggling with credit card interest, a lower-interest debt consolidation loan can cut the amount you pay each month. That way, you can take a breather and focus on shoring up your finances.
6. A quarter of consumer payments were conducted with credit cards
The latest report from the Fed found that credit cards accounted for more payments in 2019, following a trend of increased credit card use. In the previous year, credit cards were used in 23% of payments, upped to 24% in 2019.
This figure is likely to have increased in 2020, considering the surge in contactless payments prompted by COVID-19 fears. While contactless payments and online shopping have increased in an effort to limit interactions and stay safe, it’s also important to protect your credit card and personal data when making purchases.
Remember, there are several ways you can earn money fast with your phone or computer while staying safe at home.
