An unfortunate fact of life during the holidays is that millions of consumers add to their credit card balances. They may have every intention of paying them off but all to often those charges are still on the account when the next holiday season rolls around.
A new study by LendingClub Corporation documents the problem, showing that a significant portion of Americans find themselves ensnared in unintentional credit card debt, leading to financial instability and mental distress.
Despite initial intentions to use credit cards for convenience, credit building, or rewards, nearly half of cardholders end up carrying a balance, often unaware of the high interest rates they are paying.
The research highlights another troubling trend: many consumers do not view credit cards as loans, which leads them to overlook interest rates and terms. This oversight has resulted in 47.3% of Americans accumulating revolving credit card debt, exacerbated by inflation and rising living costs, particularly in food and groceries.
Conflicting realities
Part of the problem may be consumers find themselves in conflicting realities. Nearly 66% of Americans say they can manage their finances without credit cards, 60.3% use them weekly. This dependency can lead to significant financial burdens if balances are not paid in full each month. Nearly 27% of Americans dedicate as much as 40% of their paycheck to credit card debt, a cycle that is difficult to escape.
"No one intends to carry credit card debt, and that's part of the problem," said Mark Elliot, chief customer officer at LendingClub.
"Cards are great for convenience, to build credit, or to earn rewards, but if you use them as a loan, you need to know how to pay down that high-interest loan as quickly as possible. If you can't, your debt can grow exponentially and you can find yourself on a hamster wheel of credit card debt. Once you're on that wheel, it can be really hard to get off, and that's why credit cards are so lucrative for issuers."
Emotional toll
The emotional toll of this debt is profound, with 75% of Americans frequently thinking about their debt and 40% experiencing negative emotions such as anxiety and frustration.
Managing credit card debt can be complicated by having multiple balances, fluctuating interest rates, and varying payment schedules. Despite efforts to manage these debts, many Americans lack effective tools, with 22% indicating they lack proper monitoring resources and 28.7% seeking advice from informal sources like family or social media.
Strategies such as the debt snowball or avalanche methods are common but can be slow and costly due to interest charges. Only 10.4% of respondents opt for consolidating debt into a personal loan, which could offer lower interest rates and a structured repayment plan.
As the holiday season approaches, Elliot advises consumers to monitor their credit card debt and plan for repayment.