How Does Your Credit Card Spending Compare to the Average American's?

Is your credit card balance higher or lower than average?

It's hard to argue that Americans don't have a credit card debt problem. By early 2020, total credit card balances in this country reached $893 billion, according to a study on credit card debt done by The Ascent.

While that number is high, it might not provide a completely accurate picture of the average person's finances. Read on to see how you stack up against our statistics regarding the average American's credit card spending.

The average American is $6,194 deep in credit card debt

As of mid-2019, the average American's credit card balance is $6,194. That rather high balance is a number that's been on the rise for years.

It's important to note that a minority of consumers pull the average up with extremely high credit card balances. Most people fall below that average. About two-thirds have a credit card balance below $5,000, and over half have a balance of $2,500 or less. These numbers aren't ideal, but they're certainly more manageable than the average number.

The creeping cost of credit card debt

Credit card debt isn't cheap, and the cost can creep up on you -- especially if you're only paying the minimum each month. A credit card balance in the thousands can take years to pay off and end up costing more in interest than the original balance.

On a card with an 18% APR, for instance, people who pay the minimum on a $6,194 balance would take over 24 years to pay off their credit card and spend more than $8,000 on interest. Someone with a balance of $2,500 on the same card, also paying the minimum each month, would pay the balance off in 17 years and spend over $3,000 on interest -- significantly less, but still a lot.

The most effective approach is making higher monthly payments. This is because compound interest accumulates quickly -- the more you can pay off earlier, the less you'll pay over time. Consider someone with the same credit card and a $6,194 balance who's making $500 monthly payments. They'll have that balance paid off in just one year and nine months, and they'll spend just over $1,000 in interest -- even less than the person mentioned above who started with a far lower balance of $2,500.

Ideally, card holders should pay off credit card balances in full every single month. That avoids interest charges altogether, and avoids the risk of debt becoming unmanageable.

Don't forget the importance of credit utilization, even if you pay off your balance each month

Paying off your balance in full each month is excellent, but it's not the only thing that matters when it comes to credit card balances.

Credit card issuers typically report credit card balances to the credit bureaus when credit card statements close, not when payments are made. This means that a person who racks up a credit card balance of $6,000 each month but always pays it off could still have the balance reported to credit bureaus as $6,000.

Credit utilization rates are the reason this matters. Calculated as a person's overall revolving debt divided by overall available credit, this rate is one of the most important factors beyond on-time payments in determining a credit score.

Luckily, Americans are in pretty good shape in that respect. America's collective credit utilization rate sits at 23%. A lower rate is always better, but the most common recommendation is to keep that rate below 30%.

In the end, the two biggest credit card spending rules for maintaining good credit and healthy finances are as follows: Try not to spend more than 30% of your available credit, and pay off your balance in full each month.