Americans make progress in credit card debt, but expert worries it’ll be short-lived

June 10, 2024 2:06 pm
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Americans made progress on their credit card debt last quarter, but one expert is worried it will be short-lived.

“There are significant clouds” on the horizon when looking at the preliminary data for the early part of the current quarter, WalletHub Founder and CEO Odysseas Papadimitriou said Monday.

WalletHub published a new report showing Americans collectively paid down almost $50 billion in credit card debt during January, February and March.

The first-quarter paydown was 8% more than a year ago.

That’s “great” progress against debt, Papadimitriou said.

But preliminary April data showed credit card debt was back on the rise.

April credit card debt was at a record high and up 7% from April 2023, according to WalletHub.

Even adjusting for inflation, April’s credit card debt was 4% higher than last year.

“Households have started realizing that the combination of high interest rates, high debt levels, and inflation is a lethal combo that is going to blow up household budgets,” Papadimitriou said. “And people are taking action. But the April number makes me highly concerned that maybe the lesson was short-lived.”

Americans carried more than $1.26 trillion collectively in credit card debt in the first quarter, which averages to over $10,000 per household, according to WalletHub.

That’s about $2,100 below the per-household record from late 2007 when adjusting for inflation.

WalletHub’s report uses inflation-adjusted figures, which Papadimitriou said is “very important.”

The raw figures that show record levels of credit card debt don’t tell the full story, he said.

Unadjusted debt figures don’t account for rising salaries and don’t explain why we’re also not seeing record defaults on credit card debt.

“We’re headed there, no question about it, unless something changes,” he said. “But we’re not there yet.”

WalletHub also takes into consideration charge-offs in its calculations.

A charge-off is when a bank writes delinquent debt off its books. But that doesn’t mean it carries no consequences.

“You need to put into the equation the charge-offs, as well,” Papadimitriou said. “We don’t consider that a paydown, because while the debt may be off the books of the banks, and you might see the number drop, people are still liable for that debt. Collectors are still going after them. And so, you cannot give credit because we charged off some debt, (because people) defaulted on some debt. And so, our paydown adjusts for that, and it’s a net paydown.”

Papadimitriou is worried Americans’ progress toward reducing credit card debt is going to be wiped out before we even hit the halfway mark of the year.

Paydowns in the early going are typical, as are rising debts in the rest of the year, he said.

And the second quarter alone could erase the first-quarter progress if April is any indicator, he said.

So, what can you do to avoid credit card debt?

Papadimitriou said his best advice sounds simple but is hard to implement.

“Look at your spending carefully and really ask yourself … would most people consider this type of an expense a luxury or a necessity? And answer that truthfully for yourself, and start cutting down the luxuries,” he said.

If you already have credit card debt, the key is lowering the costs associated with that.

Consumers are getting charged record rates, he said.

The average credit card interest rate is now over 22%, according to WalletHub.

That’s a killer, and it’s really prohibitive to making meaningful progress in reducing debt, Papadimitriou said.

A 0% balance transfer card might be a good option for some people. You could pause your interest clock for up to 21 months with one of those cards.

A consolidation loan is another option.

A reputable nonprofit credit counseling agency, such as Money Management International, can also help you get on a repayment plan with lower interest rates.

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