Americans Expected to Rack Up $1 Trillion in Credit Card Debt This Year

Fewer Americans have ‘subprime’ credit scores, but debt levels are climbing

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Two reports paint a bit of a mixed picture of trends in America’s credit card debt. First, the good news. The overall credit picture is improving for many Americans with the percentage of subprime credit scores – FICO scores below 640 – falling to nearly 21%, the lowest level since 2005, due in large part to the overall improvement in the economy, and the shrinking unemployment rate.

CardHub’s Q1 2016 Credit Card Debt Study, however, finds that we’ve repaid just $26.2 billion in credit card debt in the first 3 months of the year, the smallest first-quarter pay down since 2008, and predicts that we will end 2016 with $1 trillion in unpaid balances.

“With 8 of the last 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits,” the study says.

Cardhub recommends the following tips to help you improve your credit card debt situation:

  • Try the Island Approach: The Island Approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms, as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.
  • Use the Snowball Method to Strategically Pay Off Amounts Owed: In order to become debt-free at the least possible cost, you should attribute the majority of your monthly debt payment to the balance with the highest interest rate while making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process as necessary with the remaining balances.
  • Evaluate Your Job Situation: In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background, or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.

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