Americans Are More in Debt than Ever — Here's What You Need to Know

Landscape view of a rock formation that spells the word debt

One trillion dollars is a number that's so big it's hard to wrap your head around. Yet this shocking sum represents a major milestone: the total amount Americans have racked up in credit card debt. This is the highest debt total ever. During the second quarter of 2023, credit card balances jumped by $45 billion, clearing the trillion mark and landing at $1.03 trillion.

This unprecedented level of debt means that the average American household is carrying $6,568 in credit card balances.

How did we get here? Unprecedented debt has been caused by unprecedented macroeconomic factors: we are still living in a post-COVID economy, riding the waves caused by inflation spikes starting in 2021 as the economy opened up and the Fed's attempts to slow down and lower that inflation with a history-setting series of rate hikes.

If you're a consumer — as the economists call you — this is a one-two punch: your money is worth less (inflation), but any debt you're carrying is suddenly accelerating (increased interest rates and compounding interest on existing balances).

So, if you find yourself in more credit card debt than you were expecting, you are not alone. And there are reasons to explain how you got here that have nothing to do with bad decision-making. Let's dig in.

Understanding the High-Interest Trap

Of course, credit cards typically come with high-interest rates. (That's why credit card companies are happy to loan you that money in the first place.) And now those rates are sky-high, with the average introductory interest rate registering above 20%, at 20.94%.

The burden of compounding interest makes it incredibly difficult for people to pay off their balances in full each month. And, in fact, almost half of all Americans (47%) are currently carrying balances from month to month. So a seemingly small and controllable balance — like, buying a new television, or those car loan repairs you needed — can quickly escalate if you're only making the minimum payments, trapping you into a cycle of debt that feels hard to escape.

Consumer Confidence Can Lead to Debt

A huge upswing in credit card debt doesn't always mean that people are spending because they can't make ends meet. Why? Consumer confidence is closely related to credit card debt accumulation because it shows Americans believe in the economy. If they believe they will still have a job and earn their living tomorrow, then they are free to spend today.

So yes, it's a double-edged sword. A solid economy — employment is high, despite inflation — leads individuals to feel more financially secure, which encourages them to spend more and add more to their credit card balances. U.S. consumer confidence has reached its highest point post-pandemic. Great! What goes with that? Americans at every level of income have deepened their debt.

There Are Real Drawbacks to Easy Credit

It's just as easy to open a new credit account as it is to quickly accumulate credit debt. Attractive introductory offers, such as 0% interest for a set period or a substantial sign-up bonus, can lure Americans into opening new accounts they don't even really need. However, these incentives mask the true cost of carrying a balance on the card.

Don't be seduced by these appeals. If you don't need the credit, don't sign up for the card. It's easy to forget that a $6,000 credit line isn't actually 6,000 free dollars. The couple hundred bucks those incentives represent are easily blown out by the accumulating interest if you roll over balances.

Beware the Emergency Expense Dilemma

A significant number of Americans do not have sufficient savings to cover emergencies or unexpected expenses. A recent survey revealed that nearly 40% of Americans would struggle to cover a $400 emergency expense. This lack of financial preparedness often forces individuals to rely on credit cards to cover these costs, contributing to the increase in credit card debt.

So, What Can I Do?

Remember this: credit card debt — and all kinds of debt — are a part of modern life. And there are plenty of tried-and-tested ways to pay down your debt and regain control of your spending.

8 Strategies for Reducing Credit Card Debt

While the $1 trillion mark is indeed concerning, it is possible to reverse your piece of this puzzle with awareness and responsible financial habits. Here are eight strategies from debt consolidation experts on the most effective ways to reduce credit card debt:

  1. Assess Your Debt: Pull together a list of all your debts, including interest rates and minimum payments. This will provide a clear picture of your financial situation and help you begin your plan of attack. These four financial health questions can help get you on the right track.

  2. Create a Budget: Developing a detailed budget that accounts for all income and expenses is crucial for any debt-reduction plan. Prioritize your needs over your wants and allocate any extra money to paying off your debt.

  3. Choose a Strategy: There are two popular methods for paying off debt yourself. They require a serious commitment of time and discipline, but they work. Method 1: the debt avalanche method, which involves paying off your highest-interest debt first, for the greatest savings. And Method 2: the debt snowball method, in which you pay off your smallest debt first, to keep you motivated as the number of debt accounts you have goes down. Choose the method that you think will keep you motivated, and stick to it!

  4. Consider Balance Transfers: Transferring high-interest balances to a 0% interest card can provide temporary relief from interest charges. However, you must be mindful of transfer fees and ensure you can pay off the balance before the promotional period ends. Most credit cards will require you to pay an extraordinarily high-interest rate off the total sum of your balance, not simply what is due that month.

  5. Consolidate Debt into One Payment: A debt consolidation loan can often ease the path of debt payoff for two reasons: (1) since you are using the loan to pay off all your creditors, you end up simplifying your debt payoff process, reducing it to a single monthly payment. (2) Additionally, if your credit card interest rates are very high, you might qualify for a loan at a lower interest rate, thereby generating savings.

    At Panther Lending, we can advise you on your best options for debt consolidation. Our financial counselors are at the ready to talk with you about your finances and help you plan a pathway to financial freedom.

  6. Explore Side Hustles: Generating additional income through side jobs can help you make larger payments on your credit card balance. A quick Google search or scrolling social media can spark some ideas for lucrative side hustles.

  7. Seek Professional Help: If you are struggling to manage your debt, consider seeking the assistance of a certified financial counselor. They can help you create a debt management plan and provide guidance on managing your finances.

  8. Negotiate with Creditors: Creditors are often willing to negotiate terms, including interest rates and payment plans. It is always worth reaching out to your creditors to explore your options.

The Best Time to Get Out From Under Your Debt — is Now

The reasons for each person's debt is different, but one thing is always true for everyone: making a plan to handle your debt today is always the right move. With compounding interest and sky-high interest rates, time is definitely not on your side!

At Panther Lending, we have helped connect hundreds of clients with debt consolidation solutions that worked for them. With our help, you, too, can be free of debt and let go of a very heavy burden that is surely weighing you down. Reach out to us today to get started.