News & Resources

Average American owes $16K in credit card debt

Jan 16, 2018 Walt Wojciechowski

Average American owes $16K in credit card debt

The unbanked and underbanked may not have as many financial services available to them as others, but they also don't have something plaguing others: credit card debt. The same can't be said for the average American, according to newly released figures.

"The typical household spends nearly $1,300 per year in credit card interest."

The typical U.S. household owes roughly $16,000 in payments on their credit cards, based on recent data crunched by NerdWallet. Additionally, credit card holders pay out almost $1,300 per year just on credit card interest fees, an average that is expected to jump in the coming months, given that the Federal Reserve has raised interest rates by an additional quarter percent.

Sean McQuay, credit and banking expert at NerdWallet, noted that many Americans have fallen behind the eight ball due to the cost of living increasing faster than wages - although income levels have started to pick up the pace more recently in states with low unemployment rates, according to The Wall Street Journal. This has led a number of Americans to borrow money by putting charges on their credit cards.

"While credit cards are an attractive option to cover today's purchases, they come at a high cost - 18.76 percent per year on average," McQuay explained. "Paying down credit card debt will mean changing spending habits or increasing earning power, both of which may be difficult adjustments, but they are the only way to build financial freedom."

Larger percentage of Americans using credit cards less
Although consumers can be unbanked or underbanked and still make use of credit - referred to as "nonbank credit" - little to no credit card use is nevertheless a common characteristic of underbanked U.S. households, according to the Federal Deposit Insurance Corporation. In general, Americans are using credit cards less often in an effort to avoid or reduce their debt. Based on the most recent Gallup poll of this type that's available, 29 percent of consumers do not own a credit card. That's up from 22 percent back in 2008, with less than 10 percent having seven or more cards.

Other traditional banking services are also on the decline, including checks. According to Blackhawk Network, 60 percent of Americans used checking for payments in 2016, down from 68 percent in 2015.

Millennials least likely to use credit cards
Young people - specifically millennials, between the ages of 18 and 35 years - are among the most common consumers that are increasingly going bankless. They're also the ones who are using credit cards less frequently. In the aforementioned Gallup poll, nearly two-thirds of millennials have none of the major credit cards. In a separate Bankrate survey, just 6 percent of 18- to 29-year-olds have two or more credit cards, a stark difference from the 21 percent of consumers 65 years of age and older who have at least two.

Americans are still swiping their credit cards, but not as much as they used to. Americans are still swiping their credit cards, but not as much as they used to.

Billionaire Mark Cuban told Business Insider in 2014 that if he could go back in time, he would change his credit card spending habits substantially.

"I should have paid off my cards every 30 days," Cuban said at the time.

Former "Tonight Show" host Jay Leno told CNBC in 2016 that he too takes a very cautious approach to credit card use, rarely using them.

"I barely use credit cards," Leno said, adding, "I didn't buy my house until I had cash. When you own something and you don't have to write checks every month, you're just better off."

Cash is the primary means by which unbanked and underbanked individuals pay off their bills. Sixty-two percent of the unbanked relied on cash for monthly payments, FDIC reported from its 2015 findings, compared to just 9 percent of fully banked households.

Larger numbers of Americans are steering clear of credit cards to avoid the debt traps many households find themselves in. Alternative credit data is an effective means of assessing creditworthiness for the credit invisible. Check out some of Microbilt's other background screening metrics.