Credit Card Debt

The average United State household carries approximately $15,355 in credit card debt. Regardless of the financial trends over the past 15 years, American credit habits have remained consistent. According to data released on February 5 by the Federal Reserve, consumers owed a total of $936 billion in credit card and other forms of revolving debt as of December 2015. Revolving debt is a credit arrangement that enables a consumer to borrow against a predetermined line of credit when purchasing goods and services. Since April 2011, American consumers have added $103 billion in revolving credit debt.

The majority of American carry debt from month to month and pay high interest charges on this debt. Only 35 percent of those aged 25 to 50 pay off their complete balances each month. Even as Americans age they continue to borrow. In fact, 45 percent of 70 year olds do not pay off their credit card debt each month. This debt accumulation begins between ages 20 and 30. According to Boston College professor, Scott Fulford, individuals currently in their 20’s do not seem to be saving in the same manner as generations that have come before them. In a recent study he reasoned that these individuals may not be saving because they are “saving just by getting higher credit limits.” These credit limits provide this population with the emergency funds if they are needed.

In every age bracket, credit cards are heavily relied upon. While younger individuals, 20 year olds, tend to use more than half their available credit, older individuals, 50 years olds, still tend to use almost 40 percent of their available credit. Additionally, credit habits do not vary much during the course of a consumer’s life. Even when certain credit habits are disrupted, an individual’s credit use habits are typically restored within two years.

Americans tend to borrow more during good financial periods and less during recessions. The corresponding trend seems to be driven by the fluctuations in credit limits. When banks offer higher limits, consumers take advantage of this increase. Credit limits have the biggest effects on people who pay minimums and carry debt forward from month to month. A study conducted by the Boston Federal Consumer Payment Research Center has shown that when these “revolvers” were offered a 10 percent increase in credit limits, they increased their debt by 9.99 percent. A majority of U.S consumers seem to take advantage on every cent offered to them by credit card issuers.

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