Living with credit

The 2 biggest causes of runaway credit card debt

Matt Schulz

Credit card debt is now the most widely held type of debt in the United States, according to Federal Reserve data released on Wednesday.

Forty-four percent of Americans held credit card debt in 2016, the Fed said in its recently released 2016 Survey of Consumer Finances. That’s up from 38 percent in 2013, and slightly higher than the 43 percent of Americans that have mortgage debt on their primary residence (which fell by 1 percentage point since 2013).

That marks the first time in 18 years that the Fed’s triennial report has shown credit card debt to be the most-common debt in the nation.

Now, it’s no secret that credit card debt is through the roof. It’s about $1 trillion and is almost certain to break all-time records later this year, and will no doubt keep climbing for the foreseeable future.

But it’s not just credit card debt that’s rising: The Fed shows that the percentage of Americans with vehicle loan debt (up from 31 to 34 percent), education loan debt (up from 20 to 22 percent) and overall debt (up from 75 to 77 percent) are also up.

So why is the percentage of Americans with credit card debt growing so fast? There are plenty of smaller reasons, but it is primarily the result of two things.

Access: More people signed up for cards
The Fed’s report covers the period from 2013 to 2016. During that time frame, with the Great Recession largely in the rear-view mirror, banks opened the floodgates when it came to credit cards. Card offers became more lucrative than ever – with once-rare 50,000-point sign-up bonuses becoming common – and cards were offered to all types of borrowers.

Folks with pristine credit reaped unprecedented rewards, but even folks with imperfect credit, so-called subprime borrowers, didn’t find it difficult to get credit cards.

That created a double-edged sword for those types of consumers. It boosted their buying power and created some opportunities that wouldn’t otherwise be available, but it also exposed them to an enormous amount of risk.

Subprime credit cards can come with interest rates of 25 percent or higher, meaning that the price of carrying a balance is enormous.

Given that many subprime borrowers may have other financial difficulties and are often living paycheck to paycheck, those interest rates leave almost no room for error. Unexpected emergencies – medical debt, job loss, home repairs – can be devastating to a budget and begin a downward spiral of debt from which it can be incredibly difficult to emerge.

Even an innocent one-time splurge can have major consequences.

To be sure, subprime borrowers aren’t the only ones responsible for the rising debt. Far from it. In fact, countless Americans with high incomes and great credit carry some credit card debt. However, folks with lower incomes and imperfect credit bear greater risk and will likely have a harder time digging out from their debt than those with good credit.

People with good credit who carry some debt might, for example, have the option of getting a balance transfer credit card with a 0-percent-interest introductory offer to help them get their debt under control. That might not be an option if your credit stinks. 

Life: It’s easy to run up a mountain of debt today.
When I was 24 years old, I had $10,000 in credit card debt. I got there because I made dumb decision after dumb decision. I spent way too much money going to ballgames, rocking out at concerts, taking my then-girlfriend/now-wife to nice dinners and generally living way beyond my means.

It took me years to dig out.

That was about 20 years ago. While there are still plenty of folks running up credit card debt to see their favorite bands and impress that special boy or girl, most Americans find themselves in credit card debt for a far different reason.

Life is expensive in 2017, and many people need help to get by, at least from time to time.

That’s the result of a card debt survey released Thursday that looked at why people get into the red. The most common reasons were:

  1. Day-to-day expenses, such as groceries, child care and utilities: 32 percent
  2. Retail purchases, such as clothing or electronics: 16 percent
  3. Medical bills: 12 percent
  4. Home repairs: 10 percent
  5. Vacation expenses: 10 percent
  6. Vehicle repairs/maintenance: 7 percent

Every age group, except the oldest Americans, agreed on the top answer. Older baby boomers (those from 63 to 71 years old) and the Silent Generation (72 years or older) each said medical bills were the primary reason, but still said day-to-day expenses were a secondary cause of their current debt situation.

That means that for millions of Americans, it isn’t about splurging. They are going into credit card debt because they have to buy groceries, put the kids in day care or even just keep the lights on.

With any survey, there’s the possibility that respondents aren’t being 100 percent truthful with their answers. Some folks who blame everyday expenses for their debt might actually have gotten into debt for far less mundane reasons.

However, there’s no question that the cost of getting by in 2017 is too much for many Americans to bear without a little help from their credit card.

The bottom line
Credit cards can be useful tools, providing a short-term lifeline when times get tough or offering lucrative rewards when times are good.

However, Job No. 1 for anyone with a credit card is to pay off your balance as soon as possible. Ideally, you would pay your bill in full every single month, but that’s simply not possible for many Americans. Instead, the focus must be on steadily paying down that debt and not adding to it. Otherwise, interest can cause that debt to grow more quickly than you can imagine.

Becoming debt-free is always an important goal, especially when economic times are good. Life is unpredictable, and bad things can happen. Getting rid of that debt lets you focus your efforts on saving money and building yourself a cushion that can protect you when your financial situation takes a turn for the worse.

See related: 8 things you must know about credit card debt, How much is the average credit card debt in America, You did WHAT to pay off your debt?

Editor’s note: This blog post by Matt Schulz originally appeared on

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