Only half of U.S. credit card users believe they will be able to pay off their December balances in full, according to industry indicators, indicating that “credit card confidence” is declining as Americans emerge from the holidays. There is.
of LendingTree Credit Card Trust IndexAccording to a survey published monthly by the personal finance site since 2018, it hit an all-time low of 51% in December.
In a nationally representative survey of 1,514 cardholders, only 51% expressed confidence that they would be able to pay off their card balance this month. His confidence index in November was 58%.
If credit card confidence is declining, many other industry indicators are moving in the opposite direction.
Nationwide credit card balances reached $1.08 trillion, a record high.of The average interest rate reached 21%This is the highest level recorded by the Federal Reserve in nearly 30 years of tracking. Some retail cards are currently charging 30% or more.
learn more: Best Credit Cards of 2023
“It was hard to imagine that rising debt, rising inflation and sky-high interest rates wouldn’t ultimately take a toll,” said Matt Schultz, chief credit analyst at LendingTree.
Credit cards are the fastest growing category of household debt
LendingTree’s index joins a chorus of industry warnings about card debt. According to a regular survey by Bankrate. In mid-2023, 47% of cardholders had monthly debt.up from 39% at the end of 2021.
average card customer I owe $6,088.According to a TransUnion report, the price for the third quarter of 2023 was up from $5,474 for the same period in 2022.
Credit card debt is Growing faster than other major categories of household debtAccording to a November report from Wells Fargo Economics.
“I think all of this is going to add up to more people being in more debt over a longer period of time. Unfortunately, I don’t see this situation reversing anytime soon,” he said. Ted Rothmansenior industry analyst at Bankrate.
LendingTree started tracking credit card credit at the right time. The card’s interest rate has hovered in the 12%-15% range in previous years, but has skyrocketed in 2022 and 2023. The rise reflects a broader rise in borrowing rates that the Fed triggered with a series of historic rate hikes, a campaign fueled by rampant inflation.
Before December’s decline, the Credit Card Confidence Index last bottomed out in June 2022, when annual inflation hit 9.1%, its highest level in 40 years. That same month, only 53% of cardholders expressed confidence that they would be able to pay off their balance.
Confidence in the credit card index peaked at 74% in October 2020, when interest rates bottomed out and federal stimulus was eased. Since then, the index has gradually declined each year, averaging around 66% per year in 2021, 62% in 2022, and 59% in 2023.
Women are more worried about credit card debt than men
Women were responsible for the recent plunge in the LendingTree index, with just 40% expressing confidence that they would be able to pay off their credit card balances in December, compared to 64% of men.
This is a significant difference, but over the five years of research, women consistently report lower confidence than men.
Schultz, the LendingTree analyst, theorizes that women may “take a slightly more conservative approach to their finances” than men.
“Men may be more confident than they should be, but women may be a little less confident than they should be,” he says.
Catherine Vallega is a certified financial planner in Boston. I am an expert specializing in women’s finances.opined that female consumers may feel nervous during the holidays due to their historical roles as gift givers and domestic purveyors.
“Women tend to be more gift-givers and more likely to be in charge of household possessions,” Vallega says. “Who doesn’t want to spend more money at the end of the year?”
Industry analysts expect card interest rates to ease in 2024, especially if the Fed follows through on expectations for modest rate cuts in the new year.
But even a two-point drop in the average card rate would only bring it down to about 19%, which is still historically high.
“I don’t know if people will notice that much of a difference,” Rothman said.
Here are some tips to reduce credit card debt
So what should you do if your credit card customer is suddenly underwater?
Rothman suggests that consumers who have debt on high-interest cards consider transferring some or all of their balances to a card with no APR. These cards typically offer zero monthly interest rates for periods of 15 months or more, allowing customers to focus their payments entirely on their debt.
“If you use them properly, you can save a lot of money on interest,” Rothman says.
more:How to get out of credit card debt and stay debt-free
Consumers with low credit scores who may not qualify for zero APR offers may consider nonprofits such as: Consumer financial consultation service. Credit counselors can act as intermediaries with credit card companies. “In many cases, you can negotiate interest rates in the 7 to 8 percent range,” Rothman said.
Vallega said cardholders can benefit by following a few simple rules when using their cards. One is to only claim what you can repay that month. Another option is to set up automatic payments on your card. Even better if you can choose the option to automatically pay the full balance at the end of the month.