It seems so for some people because, according to a recent CreditCards.com poll, Americans are carrying their credit card debt with them long-term. Worse, 50% of people surveyed weren’t all that stressed about it.
In debt for the long haul
Out of the 1,775 adults with credit card debt surveyed, 56% have had theirs for at least a year. Of those, 37% have been in debt at least two years, 23% have kept their debt around for three years, and a startling 14% have stayed in credit card debt for at least five years. Oh, and 7% can’t remember how long they’ve been in debt, so who knows where they fall?
How can you be so blasé about debt that you’re not sure how long you’ve had it? It’s only if it’s become such a way of life that it simply isn’t noteworthy anymore. Or a perhaps even scarier idea: It was never significant enough to notice when it started.
And yes, that’s only 7% of the respondents with credit card debt, but that’s still about 124 people who aren’t sure how long they’ve been in debt. Not to mention the additional 248 people who have been indebted for at least five years, which is a heck of a long time.
Where’s the money going?
Unsurprisingly, lower income earners were more likely to carry debt: 66% of people earning under $30,000 a year had credit card balances versus 53% of $80,000+ incomes. But can we just stop and gawk at the fact that 53% of people earning $80,000 a year are carrying credit card debt? That’s an awfully high number, especially since 63% of all respondents reported that their debt was from necessary spending.
Now there are legitimate reasons that someone could need to charge everyday expenses despite a high salary. For example, medical bills could eat up a lot of money. (Ask me how I know.) But the average person is pretty healthy, so what gives?
Well, perhaps they bought too much house, and the mortgage now strains the budget so that there’s simply no extra room for unexpected or irregular expenses. Insurance deductible? Card. Car trouble? Card. Large utility bill? Card.
Or perhaps student loans are eating into a chunk of their pay. Though if they’re earning almost (or more than) $7,000 a month, you’d think they could handle even a large student loan payment without the need for credit card debt.
Or — and this is my guess — maybe the respondents simply have too loose a definition of “necessary spending.” That is, maybe lifestyle inflation has taken hold so that going out with friends and fancy new gadgets… Well, those aren’t counted as necessary spending, but that stuff leaves so little room in the budget that other, more mundane expenses have to go on the card. And since the charged expenses themselves are necessary, it doesn’t seem like the debt is due to poor budgeting.
Because the fact is that the number of high income earners carrying balances is far too large for this to be simply a case of bad financial luck. There are too many of them for all of the respondents to have expensive chronic health conditions combined with high student loans. Especially given how long these people are staying in debt.
Debt is the new normal
Another worrying fact: Higher-income households are carrying their debt longer than their lower income counterparts. Seventeen percent of $80,000+ income-earners have had debt for at least five years compared to just 7% of lower income earners.
Of course the real question is how these higher income earners can be so apparently complacent as to let the debt sit for so many years. Sure, some of them are probably hell-bent on paying down their debts, but clearly not enough since 50% aren’t terribly stressed about their balance.
Seriously, how can that be?
The average credit card APR is 17.64% these days. That’s a heck of a lot of interest to be accruing for the cardholders not to be sweating their debt. Are they divorced from the reality of credit card interest? (It might explain why they haven’t gone and gotten a 0% APR card.) Or have they simply become so inured to the idea of owing that it’s no longer a priority to pay off the cards?
I’m betting it’s the latter. I think it’s become so mundane to have credit card debt — especially once it’s been a year or more — that it simply starts to seem like par for the course. As though that’s the way it will always be, so there’s no point in fretting, let alone working hard to pay it off.
Been there, done that, didn’t buy the t-shirt
Of course, we shouldn’t discount the half of the people from the study who are stressed out about their card debt.
Unfortunately, the article doesn’t tell us how that half broke down. I’m willing to bet that the lower income earners are the ones who are more concerned.
People with higher incomes can tell themselves that they’ll dig their way out eventually. But if you’re bringing in less money and the hits keep on coming… Well, you would begin to despair, wouldn’t you? I know I used to.
Maybe that’s what’s so infuriating to me about this study’s results: I’ve been in long-term credit card debt — and on the lower-income side of things.
Our debt was almost exclusively from necessary spending. It was mostly medical and student debt, along with more doctor bills and other medical-related expenses accrued along the way. (We did spend a little too much on our honeymoon, hence the “mostly.”)
We had to pay off that $30,000 of debt while bringing in just $3,100 a month (with $700 rent and Tim’s $500 health insurance). Because of our lower income (and because I hate owing money, especially at high interest rates), the debt was always considered a crisis. It was always something that we were working on, that our spending had to reflect.
It seems like that just isn’t the case of people who are really carrying debt this long. And I truly don’t understand that.
Some are trying — but many aren’t
Yes, there are people out there who have such significant amounts of debt that it will take them years to pay off. Perhaps a large chunk of respondents were in that group. Unfortunately, the size of the debt doesn’t appear to have been one of the study questions, so we can’t say for sure.
But the average for U.S. households carrying a credit card balance is $9,333. That’s not a small sum, obviously, but Tim and I paid down more than three times that in five years while making less than $40,000 a year. So it doesn’t make sense that people earning $80,000+ are taking so long to pay down debt unless a lot of them simply don’t see it as a priority. Debt isn’t a crisis for them. It’s just a fact of life.
Backing this up is the recent poll that found that 65% of Americans aren’t sure when (or if) they’ll get out of debt. In fact, 25% fully expect to die with debt. Talk about a way of life!
Granted, the debt referenced there included mortgage and student loans, but both of those types come with their own end dates. Which means people know when they’ll be done with their student/mortgage debt. So the real issue must be that Americans aren’t sure when they’ll be done with their credit card debt.
And I get it: You can be hit with emergencies or medical crises that necessitate credit card debt, especially when you’re lower income. But for the average (read: healthy) higher income earner… Well, long-term debt just smacks of a worrisome indifference to debt.
Has credit card debt ever been just a fact of life for you? What shook you out of it?
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Lazy Man and Money says
I think it’s probably a combination of all the things you mention.
The person making $7,000 a year will make less after taxes. Student loans, child care, medical bills can add up quickly. While not everyone will have all of those, they are enough to move the statistics.
I think you might also be onto something. I still see people with iPhones and typically they are paying hundreds for them. There’s no shortage of people at my local Chipotle. The definition of necessary may be blurred as you mention.
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Abigail says
Well, and these days most people consider a cell phone a necessity. Granted, getting a high-end phone isn’t necessary, but I think it simply doesn’t occur to people to get a cheaper phone but instead to grumble about the price of the nicer phones and fork over the money.
Good point about childcare. It’s one I always forget, and it eats up a lot of disposable income.
Linda says
Thinking about this particular example (cell phone), I can easily see how someone with a lower income ends up with an expensive phone. Is argue a cell phone is a necessity these days. People don’t have landlines anymore and they need to stay in touch with employers, teachers, child care providers, medical professionals, government and benefit providers, family and friends. So much key information and communication is done via mobile these days, that they need a smart phone. So why not get a used smartphone or one that is cheaper? Because that would still require you to get me up with a check no of money all at once. Many people are taking advantage of free financing through a mobile provider, and they only offer that on the newer models. Just my thoughts on this one area where there’s a system set up to keep people in debt.
Abigail says
Good point. I keep forgetting about the monthly financing. Dangerous stuff. And yes, at this point a cell phone of some sort is basically a necessity. In that it’s not actually necessary in the most literal sense (you could have a landline) but society has shaped itself so that it’s for all intents and purposes necessary to function in day to day life and not be looked at as a weirdo.
At any rate, it’s easy for people on lower incomes to need to go into credit card debt anyway for very necessary things like groceries or gas. Because you can’t call in to work as too broke to get the gas you need to get there. Not how it works. So you put it on a card. Same with food: you need to eat, so on the card it goes.
It’s people with higher incomes that baffle me, though some other comments here have made some good points about where some of that money is going.
Dawn says
The instigation for me to completely erase all of my debt (credit card and otherwise) was when I moved in with my (then) boyfriend. I did not want to bring any debt into our relationship. He was in a much better financial situation than I was, and it was a matter of pride that at the very least, he would not have to be paying off any part of my debt. So I took an entire year, paid off everything I owed (including money that I had borrowed from him to buy my new car free and clear), and then went into the situation with a clear conscience.
That was in 1998 – I’ve been free and clear of CC debt for the entire century so far, and not likely to change that in the future 🙂
I simply can’t understand how people can NOT view debt as anything less than a HUGE obligation that they need to take care of immediately.
Abigail says
That’s a pretty good, pretty positive impetus to erase debt: to enter a relationship with a clean slate. Congrats on being free of debt for so long! It must be freeing. I know that since we got rid of the last of the non-mortgage debt in… 2012 I want to say?… I’ve been breathing a lot easier. Once I’m done with the house I know I’ll feel even freer.
Dawn says
It is amazingly freeing, and has most definitely changed my life for the better.
jj says
I am lucky to have no student debt, and to live at home with little responsibilities. So for me, it was a matter of uncontrolled spending. I always said, oh I have the $$ – but in actuality, I did not, and the CC balance was always there. For the first time this year, my balance is $0.00 and I plan to keep it that way. Luckily, I bought my new car with settlement $$( old one a write off) and even my winter tires, I have the $$ for them. It is indeed a whole lot of unnecessary spending – I have a cellphone renewal due in September, and while i do want the newest phone, I am going to try to not go and spend an arm and a leg on it.
Abigail says
Good for you for recognizing the root of the problem, then fixing it. So glad you were able to get your car and get it outfitted with new tires without going into debt. Those suckers are pricey! I hope you find a good deal on your next cell phone.
jj says
Thank you! I am just trying to get into the groove of being more conscious of how I spend. Now if only I could get my but into gear for job hunting !
Elise Griffith says
It’s complicated (I believe) and there can be many causes/reasons. Many adults now grew up in households where debt was “normal”. Before the time when credit cards offered points or cash back. When mortgages had higher interest rates. So to those folks, it’s no biggie; Mom & Dad did it, and it worked okay for them. Also, for many young adults now, both Mom & Dad were working. Often long hours. I watched many parents shower their kids with anything and everything their little hearts desired while raising my kids on a tight budget. I was the mean old woman. But those kids didn’t learn delayed gratification, so as adults buy whatever they want, whenever they want it.
Then (of course) cost of living has risen high/faster than wages for several decades. If you live in a high COLA and are making barely enough to get by, credit cards become your float. One coworker of my son’s put it best recently regarding CA state leaders once again talking about raising taxes, “Have you ever had to choose between buying gas for your car or groceries? I didn’t think so.”
Note: An average 2 bedroom apartment here runs between $1800 and $2200 per month, utilities NOT included, so you’d have to be earning $5,400 to $6,600 each month in an area with few high paying jobs. Taxes and insurance are higher here, too. Gasoline runs at least a buck more per gallon than most other states, etc.
Abigail says
True, in high cost of living areas, $7,000 isn’t going to stretch as far as it would in most places. Unfortunately, the study didn’t breakdown geographic region, so we don’t have much to go on.
I definitely understand how credit card debt is a necessity for some people, mainly those earning so little. I had to put my medications on a credit card when I was young and broke and trying desperately not to go on disability. This was back when individual insurance didn’t cover antidepressants, and my meds were $600 a month, while I was definitely earning under $30,000 a year. So I put them on the card, then made as large a payment as I could when money did come in.
Life For The Better says
I’ve never had credit card debt in my life. I’ve always treated it like a debit card.
Do you think education has something to play with this? More so financial literacy. I understood from a young age what debt could do to a family and never wanted to be put in that position.
I wonder if it’s also a want v.s. a need? You mentioned that 63% stated it was “necessary” for spending. I wonder if this mindset can be shifted.
Abigail says
The lack of financial education in this country certainly can’t be helping. I think debt is too abstract a concept. And as one other commenter noted, they saw their parents getting along fine with debt so they assume it’s no big deal. They didn’t get taught, the way you apparently did, what debt can do.
I definitely wonder what constitutes necessary spending and what areas of the budget these people could potentially be trimming (the higher income earners more so than the lower income ones). I’m sure there are some real needs on there — again, especially with the lower income earners — but I’m also curious as to the definition of necessary spending. Or perhaps they’re simply glazing over the unnecessary spending they’re also putting on the card and only remembering when stuff like tires have to get charged.
becca says
It’s not clear to me if student loan debt comes with an expiration date. The average Bachelor’s degree recipient takes 21 years to pay off their debt. If you get past a certain threshold it becomes impossible to even keep pace with interest. Income-based repayment helps, but given what has happened with public service loan forgiveness snafus, I wouldn’t be completely sure that the balances will, in fact, be forgiven as promised after 20 years of payments, or whatever it is by statute. And of course, there are still people out there with private student loans and even governmental ones that were too old to qualify for any eventual forgiveness.
I lived debt free for a short time, but ultimately it just wasn’t worth it. I loved Kalamazoo Michigan, where I could buy a house for cash (10k on Craigslist). But my chosen field of employment (biological science) is one of the top 15 most geographically clustered ones, and I couldn’t make employment work in that job market long term. So I ended up with a mortgage in a cheaper suburb of Chicago. The economics are different here, and I’m not sure I’m better off. But the debt is a tool, in this case to provide a house in a much larger metro in a district with good schools.
I’ve never carried a credit card balance, except inadvertently for a one-month interest payment when I was traveling or otherwise exceptionally busy. But my Dad used to, not infrequently, because he played the credit score game and could stay organized enough to get the 0% promo rates.
In any event, the only people who should “worry” about credit card debt are the people in the middle. If you are making good money and paying tiny rates, well it’s a leveraged risk and you can pick and choose which one of those make sense to you (no different from a mortgage, in that sense, except you don’t get evicted if you lose the bet). If you are making very little money and paying high rates, you’ll never get out of debt anyway so you may as well not worry.
Abigail says
I disagree that you’ll never get out of debt if you make very little money and pay high rates. It’s difficult and it takes far longer, but it’s probably possible.
As for student loans, I was under the impression that they were fixed-term loans. But after I did a quick search, you’re right that the average bachelor’s degree holder takes 21 years to pay off a 10-year loan. Not quite sure how that works, but that’s a post for another day I suppose.
Donna Freedman says
Also disagree that low wages + credit card debt = impossible situation. In some cases bankruptcy is inevitable. But if you work with an agency like the National Foundation for Credit Counseling (which might be able to get you a lower interest rate or even a pause on interest) and are willing to undertake some sacrifice, you can eventually dig yourself out.
As Abby said, it’s difficult and it takes a lot longer. Which is probably why some people figure they “can’t” do it. In the long run, getting out of debt increases your credit score, teaches you better spending habits (if you’re willing to learn them) and ultimately frees up more of even a small salary for future goals (because you won’t be throwing every available penny at the burgeoning debt-plus-interest).
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Revanche @ A Gai Shan Life says
“If you are making very little money and paying high rates, you’ll never get out of debt anyway so you may as well not worry. ”
Strongly disagree with this. I busted my bum in that exact scenario and got us out of it because I refused to believe people who kept saying this kind of thing and I’m really glad I didn’t listen. It’s hard and painful and again, tough, but it was worth every bit of the effort, it set the foundation for a much healthier lifestyle going forward.
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Abigail says
Yep, it’s a good thing we didn’t listen to conventional wisdom on this one, or we’d both still be in debt now. If we hadn’t declared bankruptcy first, that is.
Penny Pinching Ninja says
I was reading some of these credit card stats the other day. I just find it shocking how it doesn’t create a siren in the typical person’s mind when they have so much credit card debt. It really has become the new normal and most find it strange when you do not carry any credit card debt of your own.
Abigail says
Agreed, people out of debt seem to be the exception to the rule, which is terrifying (and strange, really). I guess we just have to hope that people don’t need another recession for a new wake-up call. But they probably will.
Funny about Money says
Interesting rumination. Friend of mine recently remarked that people have become accustomed to buying access to services and online sites on a “subscription” basis, and that may explain why people so readily charge up things on credit cards. Debt as the “new normal,” as you observe!
But I’m not sure “new” is the word: People have racked up credit card debt since credit cards came into being.
As for high earners: it’s a different mindset. My ex, who was a passing high earner, blithely piled on the credit card debt…he wasn’t even faintly interested in paying it off. He seemed not to think of being debt-free as a desirable thing. Maybe when you’re earning in the six figures, it’s not: maybe these folks can afford to run a tab, and maybe it allows them to engineer more purchases. We were a million dollars in debt when I walked (not all on credit cards, of course). Didn’t seem to bother him, though.
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Abigail says
A million dollars?! I can’t even conceive of that, even having it not all be on the credit cards.
Good point about subscriptions. They’re an increasingly common way that credit cards need to be charged, and of course people then forget to cancel the darn things when they inevitably don’t get used (or not enough to justify the expense). And those services add up quite quickly, so it’d be easy to get in the hole just a little bit further each month because of subscriptions.
Caroline at Costa Rica FIRE says
I think struggles with credit card debt will increase even more as stores move to cashless payment. There are some stores that only accept payment by credit card, so there will be even more temptation to swipe the plastic. In addition, as we generally use less cash, the relationship between money and things becomes weaker. Using a credit card doesn’t feel as much like spending for some people, and that’s a danger.
Abigail says
Huh, I haven’t run into any stores that don’t accept cash yet, though I’ve been in a few that don’t accept cards. Still, I agree that for most people the less they use cash, the less realit’ll seem that they’re spending money.
Lilly Matthews says
Interesting insights you have here, Abigail! At some point, you are right when you said that “debt is the new normal”. In money matters, there’s always the expectation of a massive blow to our bank account. Truth be told, it hurts. People have different perspectives when it comes to saving money – some may have a healthy mindset, while some feel challenged about it. As such, this results in some credit card debt.
The expectations vs reality of how we manage our finances hit hard – but the realization happens in the end. Experts suggest that in order for us to be on the right path of saving money, minimising credit card debt, is to be sure to make a list of priorities, such as paying bills, rent, mortgage and only spend on the necessities of life. However, this poses a challenge to most of us. On top of that, the argument of wants versus needs is endless, leading some people to higher credit card debts.
I had a great time reading your post, and I agree to your insights. Keep posting! Cheers!
Abigail says
You’re right that wants vs needs is an endless argument since everyone’s “needs” vary a little. If your budget is tight, “needs” needs to be more literal, whereas if you’re doing okay money-wise you can consider a few wants to be integral to your happiness. And you’re right that most of us are ready for a blow to budget at any given time. When it comes to money, I think most of us are pessimists, which probably doesn’t help the desire to/belief that we can get and stay out of debt.
Jack Henry says
This is actually a great share for all credit card users. I think struggles with credit card debt will increase even more as stores move to cashless payment. There are some stores that only accept payments via credit card, so it will be even more tempting to swipe plastic. There is no doubt that this is a great post that you have shared. I am so glad to reach you. As well as i hope to hear more interesting topics from you. Keep sharing like this.
Thanks again.
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Abigail says
There are definitely stores that prefer plastic, but I don’t think I’ve run into any that refuse cash. Not yet, anyway. I think in the end, we all just have to be more cognizant of when we’re using credit cards, which of course is easier said than done. But especially after the pandemic financial pain many experienced, I think for a while they’ll be more keen-eyed about spending. We’ll just have to see how long it lasts.