Financial Strains: The Alarming Rise of Maxed-Out Credit Cards
As the cost of living continues to soar, many Americans are finding themselves trapped in a cycle of debt. A staggering 37% of credit cardholders have maxed out or come close to maxing out their credit cards since March 2022, according to a recent report by Bankrate. The primary culprits? Rising prices and a higher cost of living.
The Blame Game: Why Cardholders are Maxing Out
Most borrowers who are over-extended blame the increasing costs of essentials, while others point to job or income loss, emergency expenses, medical costs, and excessive discretionary spending. “With limited options to absorb these higher costs, many low-income Americans have had no choice but to take on debt to afford costlier essentials — at a time when credit card rates are near record highs,” says Sarah Foster, an analyst at Bankrate.
The Consequences of Carrying High Balances
As prices rise, so do credit card balances. The average balance per consumer now stands at $6,329, a 4.8% increase year over year. This has a direct impact on utilization rates, which can significantly influence credit scores. Higher credit score borrowers typically have both higher limits and lower utilization rates.
Expert Advice: Keeping Debt in Check
Credit experts advise borrowers to keep revolving debt below 30% of their available credit to limit the effect of high balances. However, the aggregate credit card utilization rate stands at over 21%. “If you have five credit cards with utilization rates around 20%, you have a lot of debt out there,” warns Howard Dvorkin, a certified public accountant and chairman of Debt.com. “People are living a life they can’t afford right now, and they’re putting the balance on credit cards.”
Generation Gap: Who’s Most Likely to Max Out?
Gen Xers in their 40s and 50s are most likely to have maxed out a credit card or come close in the past two and a half years, with 27% having done so. Millennials follow closely, with 23% maxing out their credit cards, while Baby Boomers trail behind at 17%. Gen Z young adults are the least likely to have maxed out a card.
Delinquency Rates on the Rise
Cardholders who have maxed out or come close to maxing out their credit cards are more likely to become delinquent. Credit card delinquency rates are already higher across the board, according to the Federal Reserve Bank of New York and TransUnion. A debt is considered delinquent when a borrower misses a full billing cycle without making a payment, which can damage credit scores and impact interest rates.
Improving Your Credit Standing
So, what’s the solution? Paying bills on time every month, and in full if possible, is crucial to improving credit standing. “Understand that if you don’t, then whatever you buy, over time, will end up costing you double,” advises Dvorkin. By taking control of your finances and making timely payments, you can avoid the debt trap and build a stronger financial future.
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