Credit Card Debt: What It Is, Stats, and How It Works

Owning a credit card is a privilege, but it requires careful use. Don’t let credit card debt impact your financial future. The right repayment strategies can help you nip the problem in the bud.

If you are drowning in credit card debt, you’re not alone. Consider these statistics: 

• Americans have a total credit card debt of $1.13 trillion.
• On average, Americans have an unpaid balance of $6,864 on their credit cards.
• Credit cardholders in New Jersey carry the highest balance at $8,909.
• 56% of all credit cards in the U.S. have an outstanding balance.
• The current average interest rate on credit cards is 27.92%.

For some, cutting up cards can be the solution. For others, enrolling in a debt relief program like debt settlement or debt management could be the answer. Changing your spending habits, sticking to a budget, and paying off your debt as soon as possible can help you rebuild your finances. 

How Do Credit Cards Work

Regardless of the type of credit card you have, they all work in the same way. 

Once you are approved for a card, your card will be issued along with important information about payment deadlines, spending limits, and interest rates. Your fees and rates are determined by your credit history and credit score. 

You’ll be able to spend money based on your pre-set credit card limit. If you pay off the total amount every month, you will not have to pay any interest unless you use your card to withdraw cash. If you pay the minimum amount, you’ll be charged interest backdated to your date of purchase.

Other than the interest charges, you will also be liable to pay other applicable fees, such as annual membership fees, overage charges, and late fees. Read the fine print and familiarize yourself with all the fees and charges.

How Credit Card Debt Snowballs

Credit card debt can accumulate quickly unless you pay your balance in full each month. Don't wait to find out what happens if you stop paying your credit cards. Here are a few ways in which your debt can snowball:

• Buying impulsively
• Missing monthly payments
• Only paying the minimum balance
• Exceeding your credit limit
• Using too many cards

All of the habits listed above can negatively impact your credit. Not making more than the minimum payment each month is the biggest contributor to credit card debt. This habit will quickly become expensive because of interest charges.

Here’s a quick example of what happens when you pay only the minimum each month:

This cycle can drag you down into financial misery and result in credit card delinquency.

Using your credit card to pay for things that you don’t have the funds for is a slippery slope. Getting back in control and paying off the entire balance will quickly become impossible. 

Whether you racked up credit card debt during the pandemic or because of unexpected medical expenses, it’s possible to pay it off.

How To Use Credit Cards Responsibly

One of the best ways to stay out of credit card debt is by using your card responsibly. Here are a few practices that can help:

• Always read the fine print before you apply for a credit card. Pay particular attention to the interest rate charges and the fees associated with your new card.

• When you receive your monthly bill, review it carefully. Verify each purchase listed to minimize your risk of being a victim of identity theft.

• Pay your bill each month on time. Missed or late payments can harm your credit history.

• Instead of paying just the minimum payment, try to pay off your entire balance. If you can’t pay off the total balance, have a plan in place to clear off your balance in a short period of time. 

7 Ways to Manage Your Credit Card Debt

Getting out of credit card debt requires a willingness to change your spending habits. Create clear, practical goals and use the debt solutions listed below to pay off your debt.

1. Curb Your Spending

Before you pay off your debt, you’ll need to address the spending habits that contributed to your credit card debt. Take a good look at your spending to recognize categories where you tend to spend the most.

Whether you use your credit cards for dining out frequently or for shopping for clothes, you will need to minimize your spending if you really want to make a dent in your debt.

2. Make Timely Payments

Set a reminder on your phone and pay your bills before the due date each month. When you’re already carrying high balances, frequent late payment fees will only add to your worries.

Late payments will not only result in penalties but will also harm your credit score. Bad credit can impact your ability to borrow in the future.

3. Pay More Than the Minimum

Allocate all the extra savings you have towards your credit card debt. Any extra cash you can pay towards your high-interest debt can help you save money on interest charges. 

Paying more than the minimum will also help you minimize your debt faster. Use your tax refunds, bonuses, or any other windfalls towards paying off your debts.

Start with credit cards with the highest interest rate, as per the debt avalanche method. Once you pay that off, move on to the other cards.

4. Seek Credit Counseling

If you’re not able to manage your debt on your own, seek credit counseling services from a nonprofit organization.

A credit counseling agency can review your budget and your debt and help you come up with a repayment solution. Once they enroll you in a debt management plan, stick to the payment plan to become debt-free in 3 to 5 years.

5. Consolidate Your Credit Cards

If you have multiple credit card accounts at high-interest rates, consider credit card consolidation. 

You can apply for a lower-interest rate debt consolidation loan or a 0% balance transfer credit card. If you have good credit, this can be a viable option.

Debt consolidation can replace your high-interest credit card debt with a lower-interest personal loan so you can save thousands in interest charges. It also makes your debt more manageable by consolidating all your debt into a single monthly payment. 

Compare the terms and APRs offered by different lenders to find the lowest possible rates. This will help you maximize your savings.

6. Consider Debt Settlement

If you have over $10k in debt and no possible way to pay it off, consider debt settlement. Debt settlement can help you settle your credit cards for less than you owe. Work with a reputed and experienced debt relief company to negotiate with your credit card issuers.

Debt mediation or settlement is particularly helpful when you have low credit scores due to maxed-out credit card balances, late fees, and missed payments. A professional can negotiate your settlement terms with financial institutions so you can save up to 50% of your total debt before fees.

7. File for Bankruptcy

If your credit card bills are so high that none of the other debt-relief options can help, you may want to consider bankruptcy to wipe off your debt. Bankruptcy for credit card debt should be a last resort when all other options have failed. 

Bankruptcy can wipe off credit card debt because it is unsecured debt. It will get you out of debt but at the cost of your credit. Bankruptcy stays on your credit report for 7 to 10 years, depending on the type of bankruptcy you file for. During that time, you may not be able to get other loans or credit cards. 

Don’t Ignore Credit Card Debt

Credit card debt can have a negative impact on every area of your life. However, it’ll only get worse if you ignore it. The debt relief programs we’ve listed above can help you pay it off at the earliest.

If you need help with your credit card debt, TurboDebt can help. With our counseling, consultation, and planning services, we can help you identify the right debt relief option for your needs. 

Connect with us today for a free consultation. Read our reviews to see how our debt relief services have helped thousands of clients.