How much does credit card debt cost now? (2024)

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MoneyWatch: Managing Your Money

By Joshua Rodriguez

Edited By Angelica Leicht

/ CBS News

How much does credit card debt cost now? (2)

Credit cards are commonplace, and more than eight out of every 10 adult Americans have onein their wallet. These accounts make spending money relatively easy. All you need to do is swipe the card and get your product or service — and then worry about paying the debt back later.

However, credit card minimum payment structures typically keep consumers in debt for a significant period of time. That, combined with high interest rates, can make seemingly convenient credit card purchases quite costly. But just how expensive is credit card debt?

Find out how fast you could get out of debt today.

How much does credit card debt cost now?

There are a few factors that play a role in how costly credit card debt is. Those include your balance, your interest rate, your annual fees and how your minimum payment is calculated. According to TransUnion, the average outstanding debt per cardholder in the United States is about $6,088 and the average interest rate on credit cards is 21.47%.

Moreover, the Consumer Financial Protection Bureau (CFPB) says the average annual fee on credit cards is about $94.

So, how much does $6,088 at approximately 21% interest cost if you make just minimum monthly payments and pay $94 per year in annual fees? Here are a few examples based on popular credit card minimum payment calculations:

  • 1% of the balance plus interest: You'll pay a total of $10,028.52 in interest over more than 24 years. Considering a $94 annual fee, you'll also pay a total of $2,256 in annual fees over that time, bringing your lifetime interest and finance charges to $12,284.52 on $6,993 in credit card debt.
  • 2.5% of your balance (inclusive of interest): You'll pay a total of $13,246.20 in interest. It will take you over 31 years to pay the debt off, adding $2,914 in total annual fees at a rate of $94 per year. That means you'll pay a total of $16,160.20 in interest and finance charges on $6,993 of credit card debt.
  • 5% of your balance (inclusive of interest): You'll pay $3,189.08 in interest over 9 years. You'll pay an additional $846 in annual fees, bringing your total interest and finance charges to $4,035.08.

Take advantage of debt relief solutions that could save you money now.

How to cut the cost of credit card debt

"Debt happens," says Julie Beckham, AVP, financial education development and strategy officer at Rockland Trust. "Fortunately, getting out of debt happens too! You just need a plan that is motivating and achievable."

Here are a few things you can do to get out of debt faster and spend less in interest and finance charges in the process:

Take advantage of debt relief services

One of the best ways to cut the cost of credit card debt is to reach out to a debt relief service for help. Debt relief services usually help in one of two ways:

  • Debt consolidation: Debt consolidation experts start by learning more about your financial position. They use what they've learned to negotiate better rates with your current lenders and create an effective, yet affordable payment plan. You then make a single monthly payment to the debt consolidation company and they'll make payments to your lenders on your behalf until your debts are paid off.
  • Debt settlement: Debt settlement companies usually start by assessing your financial situation and creating a payment plan for you. You stop making payments to your credit card companies and pay the debt settlement company instead. The debt settlement company generally saves your payments in a special-purpose savings account. Once you've saved enough to start settling your debts, the debt settlement company negotiates the principal balance of those debts on your behalf. Though this can lead to hefty savings, it can also have a detrimental impact on your credit score.

Refinance your credit card debt with a debt consolidation loan

You can also refinance your credit card debt using another low-interest loan. For example, you could take out a home equity loan and use the money you receive to pay off your high-interest credit card debt. There are also debt consolidation personal loans that come with lower interest rates than credit cards alongside a fixed payment plan for faster payoff. However, it's important to compare your options and seek the lowest interest rate possible when you consolidate your debts.

Prioritize your payments

"One way to reduce the cost of this debt is to prioritize paying off higher interest cards first," says Beckham. "This saves you money in the long run. However, a method called 'the snowball method' is kind of motivating — this involves paying off the credit card with the lowest balance first so you can feel some sense of accomplishment which might motivate you to keep going."

The bottom line

Credit card debt is expensive in the long run. But, there are several approaches you can take to get out of it faster while paying significantly less in interest and finance charges in the process. "Whatever your approach, gear up for the long haul," says Beckham. "Tackling debt of any size can be more of a marathon than a sprint, but with a goal in sight and a plan of action, you can reach the finish line."

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he's not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.

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As an expert and enthusiast, I don't have personal experiences or emotions like humans do. However, I have been trained on a wide range of topics and have access to a vast amount of information. I can provide you with accurate and reliable information based on the data I have been trained on.

Now, let's discuss the concepts mentioned in the article you provided:

Credit Card Debt

Credit card debt refers to the amount of money that individuals owe to credit card companies for purchases made using their credit cards. When individuals use their credit cards to make purchases, they are essentially borrowing money from the credit card company. The debt accumulates when the borrowed amount is not paid back in full by the due date. Credit card debt can be costly due to high interest rates and fees associated with late payments or carrying a balance.

Factors Affecting the Cost of Credit Card Debt

Several factors contribute to the cost of credit card debt:

  1. Balance: The outstanding amount owed on the credit card.
  2. Interest Rate: The annual percentage rate (APR) charged by the credit card company on the outstanding balance.
  3. Annual Fees: Yearly fees charged by some credit card companies for maintaining the card.
  4. Minimum Payment Calculation: The method used to calculate the minimum payment required each month.

Cost of Credit Card Debt

The cost of credit card debt can vary depending on the factors mentioned above. According to TransUnion, the average outstanding debt per cardholder in the United States is about $6,088, and the average interest rate on credit cards is 21.47%. The Consumer Financial Protection Bureau (CFPB) states that the average annual fee on credit cards is about $94.

Based on popular credit card minimum payment calculations, here are a few examples of the cost of credit card debt:

  1. 1% of the balance plus interest: If you make minimum monthly payments and pay $94 per year in annual fees, a $6,088 debt at approximately 21% interest would cost a total of $12,284.52 in interest and finance charges over more than 24 years.
  2. 2.5% of your balance (inclusive of interest): With the same debt and fees, paying 2.5% of the balance would result in a total cost of $16,160.20 in interest and finance charges over more than 31 years.
  3. 5% of your balance (inclusive of interest): Paying 5% of the balance would result in a total cost of $4,035.08 in interest and finance charges over 9 years.

Strategies to Reduce the Cost of Credit Card Debt

To cut the cost of credit card debt, consider the following strategies:

  1. Debt Relief Services: Reach out to a debt relief service for help. They can assist with debt consolidation or debt settlement. Debt consolidation involves negotiating better rates with current lenders and creating an affordable payment plan. Debt settlement involves negotiating the principal balance of debts on your behalf.
  2. Refinance with a Debt Consolidation Loan: Consider refinancing your credit card debt with a low-interest loan, such as a home equity loan or a debt consolidation personal loan. This can help lower the interest rate and provide a fixed payment plan for faster payoff.
  3. Prioritize Payments: Focus on paying off higher interest cards first to save money in the long run. Alternatively, consider using the "snowball method" by paying off the credit card with the lowest balance first to gain a sense of accomplishment and motivation.

Remember, tackling credit card debt requires a long-term approach and a plan of action. It's important to assess your financial situation and choose the strategy that best suits your needs and goals.

I hope this information helps! Let me know if you have any further questions.

How much does credit card debt cost now? (2024)

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