Americans have amassed more than $1 trillion in outstanding credit card debt – a record high, according to the Federal Reserve. In its annual State of Credit study, Experian reports the average American is carrying a staggering $6,354. What leads to such a high amount of debt?
- Overspending. As the economy has steadily improved since the Great Recession of 2008, consumers are more comfortable spending. Many turn to credit cards for things like vacations, shopping and daily living expenses, feeling confident that they’ll be able to repay the balance.
- Lack of an emergency fund. Unexpected expenses, like a home or car repair, can break the bank. A pay cut, job loss or temporary disability can also lead to an income loss, which would be easier to survive with a financial safety net. However, without an emergency fund in place, many people have no choice but to turn to a credit card to cover these expenses.
- Medical expenses. The cost of medical care has increased over the years, with health insurance companies requiring patients to cover more expenses out of their pockets. For some, credit cards are the only way to fund expensive, but necessary medical procedures.
- Divorce. The average cost of divorce can be as high as $20,000 in some states, and many spouses must use a credit card to fund their split. On top of this, the financial strain that comes from losing an income can put a family or individual in a position where relying on a credit card is necessary.
- Making only the minimum payment. When interest is factored in, the minimum payment only lowers the outstanding credit card balance by a small amount each month. Continuing to make purchases while only paying the minimum worsens the problem and creates the perfect storm for credit card debt.
Adopting good financial habits, like budgeting and saving, not only helps you avoid more credit card debt, but also gives you the ability to pay off your current outstanding debt for good. If you have a huge debt burden and need a fast solution, Americor’s debt resolution program may be perfect for you.
By LaToya Irby