by Lauren Rosales-Shepard, Content Writer
Introduction
Credit cards have undeniably become an integral part of our financial lives. According to the Federal Reserve, 82% of adults in the United States had at least one credit card in 2022. They are so ingrained in our culture, in fact, that many banks now offer specific credit cards for children and teenagers–ostensibly, to get a head start in learning financial literacy and building good credit. But why do we as a society seem to like credit cards quite so much? Sure, they’re convenient. Cash is not always practical to carry in large quantities; plus, credit allows consumers to make purchases in accordance with their long-term incomes, rather than weekly, or bi-weekly, paychecks.
Perhaps on the surface, none of this seems like a problem. During the COVID pandemic, for example, the ability to pay without handling the same bills and coins that countless others had been touching was seen as positive. Cash is hardly sanitary! Plus, with the advent of e-commerce, where it is impossible to pay with cash, small online businesses can thrive, and consumers no longer need to live in a large city to have access to the same products. However, easy is not always equal to ‘good.’ The pleasurable feelings that accompany credit card use can also drive compulsive behavior and addiction, so that the convenience factor becomes much more disquieting. And the ‘invisibility’ of cash when cards are used also leads users to spend more–sometimes twice as much! Out of sight, out of mind.
Therein lies the muddle. In America, credit card debt is currently up more than 12% compared to last year, totalling more than $1.2 trillion. In other words, the debt is nearly as pervasive as the use. In this report, we will offer an overview of the state of credit card debt in America and try to answer several questions that arise in the process.
Credit Card Debt in the U.S.
We’ve established the popularity of credit cards, and the fact that the ‘buy now, pay later’ mentality is a major factor contributing to that popularity. However, for a large percentage of Americans, ‘pay later’ doesn’t mean at the end of the month, when the bill comes due. A recent BankRates credit card debt survey reveals that 54% of adults carrying a credit card balance have had the debt for less than two years, and one in five reported that they’d had a balance for more than five years–half a decade. Fewer than half of the respondents claimed to have a plan to pay off the debt. This dispiriting data coincides with an online survey commissioned by NerdWallet in November 2023; among those who reported currently having revolving credit card debt, a hefty one-third admitted that they’ll probably always have some balance carried over from month to month. Just how much debt are we talking about? A study by Experian found that the average credit card balance among consumers in Q3 2023 was $6,501–exactly 10% more than the previous year.
Meanwhile, the interest owed accrues. A 2022 analysis from the Federal Reserve found interest accounts for 80% of total credit profitability–in fact, in that year, credit card borrowers were charged a staggering $105 billion in interest. What is possibly most alarming is that a BankRates survey last year found that 43% of cardholders with debt don’t actually know how much interest they’re paying. This lack of knowledge makes a kind of sense; in the same way that credit cards hide the reality of the amount of money one spends, interest charges are likewise invisible.
The results of this overwhelming debt are manifest. One–perhaps obvious–consequence is the immense amount of stress that plagues the affected consumers. In the abovementioned NerdWallet survey, 27% of those surveyed with credit card debt said it’s their number one stressor, and a whopping 22% (nearly a fourth!), claimed that they felt “defeated” by their debt. A slightly less apparent result is that many are being forced to pay down their debt in a never ending battle–at the expense of their emergency savings. According to BankRates annual “Emergency Savings Report,” published in March 2024, more than two-fifths of adults said they lacked the savings to cover an emergency expense of $1,000 or more. In fact, the same report finds that 36% of U.S. adults have more credit card debt than emergency savings–the highest since BankRates started asking in 2011. These statistics paint a bleak picture of American consumers, one where they occupy a vulnerable position in which their debt is preventing them from building a financial contingency plan. If anything should go wrong, they will only end up digging themselves deeper into that same debt.
So, how exactly did this happen? There is something inherently seductive about the “'buy now, pay later' philosophy” that credit cards embody which goes beyond mere utility and convenience. One MIT study found that using a credit card can exploit reward networks of the brain–and, the more we use them, the more we condition ourselves to enjoy the experience. Paying with a credit card feels good. This occurs on a purely neurological level–when we make a purchase with a credit card, additional studies have noted strong activation in the striatum–a critical component of the reward system in the brain. Not to mention, at the end of the day, paying with a credit card simply feels less ‘real’ than cash; you aren’t counting it out, bill by bill, and the experience of purchasing is self-contained, limited to the fun part. And if you combine the convenience of paying with a credit card with this innocuous façade, you can see just how easy it is to tap into that pleasurable reward center. So, we do.
A recent BankRates survey regarding discretionary spending discovered that 38% of adults in the U.S. are willing to go into debt for such non-necessities as travel, dining out, and live entertainment. In addition to which, 75% of respondents to a recent Experian survey reported that new or increased bills have impacted their ability to pay down their credit card balances. Recent events reflect this data; student loan repayments are back on (after a respite during COVID), and premiums for both home and auto insurance have increased. Plus, over the last year, inflation saw the price of goods escalate–it’s only logical that more consumers would begin to use credit cards to bridge any monthly shortfall between static income and the increased cost of living. NerdWallet’s abovementioned survey found that nearly half of Americans with revolving credit card debt (48%) say spending on necessities contributed to their balances.
Exceedingly targeted advertisements have also given us more to buy in the first place, and the repetition of specific ads tailored to our preferences breeds a comforting familiarity that can be difficult to resist. That same repetition also creates and reinforces a sense of truth–i.e. you should want to achieve a specific end (wealth, beauty, status), and the item in question can help you do so. It becomes less of a suggestion and more of a fact. Obviously, the companies want you to buy their products, and credit cards, likewise, increase their profits when you do.
Studies have shown that low minimum payments on credit cards can distract the consumer from the actual, larger balance. This is especially the case when users opt into automatic monthly payments and neglect to check the account. In such scenarios, the interest continues to rack up, and often surpasses that which the consumer would have owed in the late fees they were trying to avoid in the first place A gap in financial literacy has also contributed to an (incorrect) assumption that once the minimum payment is made, the user is in the clear. This misconception, however, is in the best interest of the banks and credit card companies, as they make the most profit off of the customers who pay some each month, but continue to carry a balance.
Conclusion
There are well over half a billion credit card accounts, according to Experian data. Through these accounts, U.S. consumers drive more than $4.5 trillion in purchases of goods and services annually. That is a lot of use, and it isn’t surprising when paired with the survey data from NerdWallet regarding credit card users with consistently revolving balances: nearly half (48%) said spending on necessities contributed to their balances, and close to a third (31%) reported the need to use a credit card to make ends meet. Perhaps most tellingly, one-third (33%) said they believe credit cards are necessary to make it in America if you aren’t rich. Ultimately, it’s clear that credit cards are here, and as a society we have made them an integral part of our financial lives. As credit cards continue to weave themselves into the fabric of our society, from such emerging features as “buy now, pay later” and Apple Pay, it’s important to remember that the benefit of convenience is also accompanied by the potential for misuse.
The content on this page provides general consumer information. It is not legal or financial advice. Unison has provided these links for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of the other websites.
Introduction
Credit cards have undeniably become an integral part of our financial lives. According to the Federal Reserve, 82% of adults in the United States had at least one credit card in 2022. They are so ingrained in our culture, in fact, that many banks now offer specific credit cards for children and teenagers–ostensibly, to get a head start in learning financial literacy and building good credit. But why do we as a society seem to like credit cards quite so much? Sure, they’re convenient. Cash is not always practical to carry in large quantities; plus, credit allows consumers to make purchases in accordance with their long-term incomes, rather than weekly, or bi-weekly, paychecks.
Perhaps on the surface, none of this seems like a problem. During the COVID pandemic, for example, the ability to pay without handling the same bills and coins that countless others had been touching was seen as positive. Cash is hardly sanitary! Plus, with the advent of e-commerce, where it is impossible to pay with cash, small online businesses can thrive, and consumers no longer need to live in a large city to have access to the same products. However, easy is not always equal to ‘good.’ The pleasurable feelings that accompany credit card use can also drive compulsive behavior and addiction, so that the convenience factor becomes much more disquieting. And the ‘invisibility’ of cash when cards are used also leads users to spend more–sometimes twice as much! Out of sight, out of mind.
Therein lies the muddle. In America, credit card debt is currently up more than 12% compared to last year, totalling more than $1.2 trillion. In other words, the debt is nearly as pervasive as the use. In this report, we will offer an overview of the state of credit card debt in America and try to answer several questions that arise in the process.
Credit Card Debt in the U.S.
We’ve established the popularity of credit cards, and the fact that the ‘buy now, pay later’ mentality is a major factor contributing to that popularity. However, for a large percentage of Americans, ‘pay later’ doesn’t mean at the end of the month, when the bill comes due. A recent BankRates credit card debt survey reveals that 54% of adults carrying a credit card balance have had the debt for less than two years, and one in five reported that they’d had a balance for more than five years–half a decade. Fewer than half of the respondents claimed to have a plan to pay off the debt. This dispiriting data coincides with an online survey commissioned by NerdWallet in November 2023; among those who reported currently having revolving credit card debt, a hefty one-third admitted that they’ll probably always have some balance carried over from month to month. Just how much debt are we talking about? A study by Experian found that the average credit card balance among consumers in Q3 2023 was $6,501–exactly 10% more than the previous year.
Meanwhile, the interest owed accrues. A 2022 analysis from the Federal Reserve found interest accounts for 80% of total credit profitability–in fact, in that year, credit card borrowers were charged a staggering $105 billion in interest. What is possibly most alarming is that a BankRates survey last year found that 43% of cardholders with debt don’t actually know how much interest they’re paying. This lack of knowledge makes a kind of sense; in the same way that credit cards hide the reality of the amount of money one spends, interest charges are likewise invisible.
The results of this overwhelming debt are manifest. One–perhaps obvious–consequence is the immense amount of stress that plagues the affected consumers. In the abovementioned NerdWallet survey, 27% of those surveyed with credit card debt said it’s their number one stressor, and a whopping 22% (nearly a fourth!), claimed that they felt “defeated” by their debt. A slightly less apparent result is that many are being forced to pay down their debt in a never ending battle–at the expense of their emergency savings. According to BankRates annual “Emergency Savings Report,” published in March 2024, more than two-fifths of adults said they lacked the savings to cover an emergency expense of $1,000 or more. In fact, the same report finds that 36% of U.S. adults have more credit card debt than emergency savings–the highest since BankRates started asking in 2011. These statistics paint a bleak picture of American consumers, one where they occupy a vulnerable position in which their debt is preventing them from building a financial contingency plan. If anything should go wrong, they will only end up digging themselves deeper into that same debt.
So, how exactly did this happen? There is something inherently seductive about the “'buy now, pay later' philosophy” that credit cards embody which goes beyond mere utility and convenience. One MIT study found that using a credit card can exploit reward networks of the brain–and, the more we use them, the more we condition ourselves to enjoy the experience. Paying with a credit card feels good. This occurs on a purely neurological level–when we make a purchase with a credit card, additional studies have noted strong activation in the striatum–a critical component of the reward system in the brain. Not to mention, at the end of the day, paying with a credit card simply feels less ‘real’ than cash; you aren’t counting it out, bill by bill, and the experience of purchasing is self-contained, limited to the fun part. And if you combine the convenience of paying with a credit card with this innocuous façade, you can see just how easy it is to tap into that pleasurable reward center. So, we do.
A recent BankRates survey regarding discretionary spending discovered that 38% of adults in the U.S. are willing to go into debt for such non-necessities as travel, dining out, and live entertainment. In addition to which, 75% of respondents to a recent Experian survey reported that new or increased bills have impacted their ability to pay down their credit card balances. Recent events reflect this data; student loan repayments are back on (after a respite during COVID), and premiums for both home and auto insurance have increased. Plus, over the last year, inflation saw the price of goods escalate–it’s only logical that more consumers would begin to use credit cards to bridge any monthly shortfall between static income and the increased cost of living. NerdWallet’s abovementioned survey found that nearly half of Americans with revolving credit card debt (48%) say spending on necessities contributed to their balances.
Exceedingly targeted advertisements have also given us more to buy in the first place, and the repetition of specific ads tailored to our preferences breeds a comforting familiarity that can be difficult to resist. That same repetition also creates and reinforces a sense of truth–i.e. you should want to achieve a specific end (wealth, beauty, status), and the item in question can help you do so. It becomes less of a suggestion and more of a fact. Obviously, the companies want you to buy their products, and credit cards, likewise, increase their profits when you do.
Studies have shown that low minimum payments on credit cards can distract the consumer from the actual, larger balance. This is especially the case when users opt into automatic monthly payments and neglect to check the account. In such scenarios, the interest continues to rack up, and often surpasses that which the consumer would have owed in the late fees they were trying to avoid in the first place A gap in financial literacy has also contributed to an (incorrect) assumption that once the minimum payment is made, the user is in the clear. This misconception, however, is in the best interest of the banks and credit card companies, as they make the most profit off of the customers who pay some each month, but continue to carry a balance.
Conclusion
There are well over half a billion credit card accounts, according to Experian data. Through these accounts, U.S. consumers drive more than $4.5 trillion in purchases of goods and services annually. That is a lot of use, and it isn’t surprising when paired with the survey data from NerdWallet regarding credit card users with consistently revolving balances: nearly half (48%) said spending on necessities contributed to their balances, and close to a third (31%) reported the need to use a credit card to make ends meet. Perhaps most tellingly, one-third (33%) said they believe credit cards are necessary to make it in America if you aren’t rich. Ultimately, it’s clear that credit cards are here, and as a society we have made them an integral part of our financial lives. As credit cards continue to weave themselves into the fabric of our society, from such emerging features as “buy now, pay later” and Apple Pay, it’s important to remember that the benefit of convenience is also accompanied by the potential for misuse.
The content on this page provides general consumer information. It is not legal or financial advice. Unison has provided these links for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of the other websites.
About the Author
Dr. Lauren Rosales-Shepard
Dr. Lauren Rosales-Shepard is Unison’s content writer. She has a PhD in English from the University of Iowa, and after several years of teaching rhetoric and composition as a college professor, she joined Unison in 2022 to bring her writing and research skills to the realm of fintech in real estate.
