Published in: Credit Cards | Oct. 27, 2019

U.S. Credit Card Users Owe Nearly $900 Billion. Should We Be Worried?

By:  Dana George

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Americans now have nearly $900 billion in credit card debt. Here's how we're handling it.

By the end of 2018, Americans owed nearly $900 billion on credit cards alone. To put that in perspective, just before the recession, credit card debt peaked at $792 billion.

We owe $793 billion on general-purpose cards (Visa, Mastercard, American Express) and $91 billion on private label cards (Macy's, Kohl's, Pier 1 Imports, and so on). 

Fortunately, this may not be a "hair on fire" situation, according to a report by the Bureau of Consumer Financial Protection (CFPB). There's more going on than meets the eye. 

An open umbrella in a light rain.

Image source: Getty Images

And the award for highest rate of debt goes to…

The cardholders with prime and super-prime credit are creating the most debt. 

Credit scores range from 300 to 850. While each lender has criteria regarding what makes up prime and super-prime ratings, Credit.com reports that a credit score of 740–799 generally ranks as prime and a score of 800–850 is usually super-prime. Prime and super-prime borrowers are seen as low-risk and have access to the best terms and lowest interest rates. 

But coming up behind...

Although consumers with the highest credit scores continue to account for the highest levels of credit card spending, the CFPB study found that those with lower credit scores have increased the average number of cards they hold and have also racked up debt. In fact, average credit card debt has increased faster for those with lower credit scores over the past few years than for those with higher scores. 

Again, this doesn't appear to be an emergency, given that aggregate credit card debt among consumers with lower scores remains below the 2008 peaks. 

What are we to make of this?

Americans are an optimistic bunch -- we have a healthy dose of consumer confidence. When consumers believe their jobs are secure and the economy is moving in the right direction, they tend to spend. It's when they begin to worry about those jobs and their prospects for debt repayment that they put the credit cards on ice. 

Despite a year-long trade war between the U.S. and China, a slowdown in manufacturing, an inverted yield curve, the longest economic expansion experienced in U.S. history, and rumors of an upcoming recession, Americans appear to feel good about their finances. 

That seems to hold across generations. A recent study conducted by The Ascent found that the average amount of credit card debt for millennials is $5,453. For Generation Xers, it's $6,627, and baby boomers carry an average of $6,800 in credit card debt. Everyone is spending.

Why no one seems worried (although maybe they should be)

We're in debt, but we do seem happy. Unemployment is at a 50-year low and interest rates on mortgages and auto loans are also low, making it easier for consumers to deal with other debts. While the future is unclear, wages are increasing. In fact, salary budgets for American employers are projected to rise by an average of 3.3% in 2020. 

Still, the CFPB study raised a few red flags:

  • Credit card delinquency and charge-off rates have increased over the past two years after falling to historic lows in the years following the recession. As a result, late payment rates have increased across credit tiers. 
  • Overall, credit card availability has stagnated or slightly decreased since 2017. Consumer demand for credit cards peaked in 2016. Since that time, fewer consumers have applied for credit cards -- and banks have approved fewer applications.
  • Those rewards points we all appreciate so much are costing credit card issuers as they look for ways to fund reward payouts. 
  • Since the 2017 CFPB report, the volume of credit card balances settled through for-profit debt settlement companies grew at a faster rate than the credit card issuers' overall accounts receivable. That means more people are searching for credit card relief, whether it's through credit card debt consolidation or debt forgiveness. 

An eye on the future

If we learned anything from the recession, it's that downturns in the economy are inevitable. Knowing that, it makes sense to protect your bottom line by planning for any eventuality. Here are a few ways to do that:

  • Pay credit card balances off in full each month.
  • If paying the balance in full is impossible, take a part-time job to retire the debt quickly.
  • Identify ways to cut back without sacrificing your standard of living. 
  • Fund an emergency account so you won't be tempted to pull a credit card out when things go south.
  • If you're so far in debt you can't see your way out, consider seeking credit card debt help. While it's not ideal -- it will leave a mark on your credit report -- there are credit card debt relief programs that will help you develop a realistic plan for getting out from under your debt. 

There's no reason to run around like Chicken Little shouting that the sky is falling. But if the sky does fall a little, wouldn't it be nice to have an umbrella?

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