Many of us use credit cards to finance Christmas spending. Some of us pay those debts off in January, but a good portion do not.
I spent this morning doing some basic internet research regarding the use of credit cards in this country, and this is what I found out:
According to LendingTree, the total amount of credit card debt in this country as of December 2022 is $925 billion! That’s right, Americans in total currently owe $925 billion in credit card debt alone. I’d be willing to bet that number has even increased during this current month.
LendingTree also tells me that the state that has the most credit card debt is New Jersey, with the average credit card holder in that state carrying a balance of nearly $8,000. For some reason, people in the eastern part of the country carry more debt than people in the west, and the top three states for credit card debt are all on the east coast. Of the people who carry balances on their cards, the average person in this country owes $6,569 in debt on those cards. This includes both bank cards (Visa, Mastercard, American Express, Discover) and retail cards (Nordstrom, JC Penny’s, Eddie Bauer and the like.) Of the people who are active credit card users, 40% of them carry a balance from month to month. A smaller percentage of card holders have cards but don’t use them. I fall into this category. My credit cards are dormant and have zero balances.
Of those card holders who are carrying a balance on their cards, the average interest rate is 18.43%. If you get an offer for a new card right now, and you decide to take them up on their offer, most new cards start at 22.91% interest. The travel reward cards that everyone is so excited about start at 23.41% interest and may go as high as 26.99% interest. This is despite their initial zero interest offer. So, once you’ve charged that first trip on your card, you may not have any interest accrue for the first six months or whatever, but it’ll catch up with you eventually and then you’ll owe thousands of dollars to the credit card company. According to LendingTree, these are the highest interest rates they’ve seen since 1994. I hope you enjoy your trip and gets lots of points you can use on future ways to go into debt. You’ll likely be paying for it well beyond your next approved vacation from work unless you pay it off right after making the purchase. This means you can’t charge more than you make every month. I understand some people play this game, but most of us would find it just as exciting and less dangerous to become fire dancers.
Some people use bank cards that are secured by their home. That’s right. They use their credit cards either as an emergency fund, or they buy things with them that depreciate, and their home equity covers it. Those cards are running at almost 25% interest right now. You read that right.
Back in the day, we learned about the joys of using leverage to create more wealth or to increase our profits. This is a concept best used by large companies and very sophisticated investors, but the idea has stuck in our heads making us believe that it’s good for everyone. The one thing it’s good for is eliminating delayed gratification. Most of us want what we want, and we want it right now. We think if we can afford the payments, we can afford it. Unfortunately, that leaves many people one or two paychecks away from total financial insolvency and possible homelessness. Gordon Gekko was wrong about this for the average person and I’m nothing if not average.
I guess I started thinking about this again when I heard a real estate broker talking about putting earnest money down when making an offer on a house. Some sellers are asking for exorbitantly high earnest money deposits before even considering an offer on their property. When the market was hot, like it was when I purchased my home 5 years ago, that was a truer statement than it is today. The example was used that someone selling a $400,000 home (which is a regular middle class house in today’s world) wanted something like $15,000 in earnest money before even considering an offer. The real estate broker, who works with many people, selling homes and hooking buyers up with the necessary financing to do so, said that most people buying or selling a home in that price range don’t have an extra $10k lying about that they can use to write a check for an earnest money deposit. The truth is, initial demands aside, many sellers will entertain an offer if the earnest money deposit is at least 1% of the sales price, (especially now). But, of course, no real estate broker is allowed to say that. So, “you pays your money and you takes your chances” as any good carnival barker knows. Give ‘em what you got and hope for the best.
The truth is, that the more debt you have, the more you put yourself at risk, especially when it comes to credit cards. People don’t think about this as much during super prosperous times, but as The Fed continues to raise interest rates, the economy appears to be stalling out in some ways. I’m no expert about this, but I keep my eyes peeled for changing circumstances, and I have noticed this. Using OPM (Other People’s Money) as an individual can be very risky and the risks can outweigh the benefits very quickly.
My husband’s first real career was as a mortgage banker, and he could explain very well about using leverage and debt to create profit and prosperity. Of course, he was selling loans in those days, so you must consider the source. People love to hear about that stuff, and get all excited about it, but the downside risk is high as well. You need to consider both sides of that coin. I personally am fairly risk averse and don’t even play the lottery, which seems to be more of a tax on the stupid than anything else. Sorry, not sorry.
Now I will say that I think the average person has no chance in hell of paying cash for a home these days, and financing is a part of that deal. The good news is that real estate appreciates over time and things you buy at Nordstrom or JC Penney’s generally don’t. Most cars, furniture, and expensive vacations don’t appreciate either, but before whipping out the credit card, make sure you can pay it off as soon as the bill comes in.
As for me, I’ll be paying off what little debt I do have as fast as possible and avoiding credit cards like the plague. I think this is a good idea for everyone, but we found out recently that some people don’t even try to avoid the – actual plague! – and they walk right in where angels fear to tread. They think they’re free. This message probably isn’t for them. The life lesson here is to live on less than you make and save as much as you can. Being in debt is the same as volunteering for slavery. If you don’t believe me, there’s this: “…the borrower is slave to the lender” – Proverbs 22:7
Something to consider.
A link for my source:
https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/
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