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Only a portion of U. S. credit card consumers are able to pay off their December balance in full, according to an industry index, indicating a slow decline in “credit card confidence” as the country comes out of the holidays.
LendingTree’s credit card trust index, a monthly survey published since 2018 through the private finance site, fell to an all-time low of 51% in December.
In a nationally representative survey of 1,514 cardholders, only 51% said they were confident they could pay off their card balance this month. In November, the confidence index stood at 58%.
While trust in credit cards is declining, many industry signals are going in the opposite direction.
The national credit card balance is a record $1. 08 trillion. The average interest rate reached 21%, the level recorded by the Federal Reserve in nearly three decades of tracking. Some retail cards now have a rate of more than 30%.
“It was hard to believe that emerging debt, emerging inflation and exorbitant interest rates would not ultimately have adverse consequences,” said Matt Schulz, lead credit analyst at LendingTree.
The LfinishingTree Index adds to a series of warnings about card debt. A regular survey by Bankrate found that 47% of cardholders were in debt monthly in mid-2023, up from 39% at the end of 2021.
The average card visitor is $6,088 in debt, according to a TransUnion report for the third quarter of 2023, up from $5,474 of the same type in 2022.
Credit card debt is developing faster than any major category of household debt, according to a November report from Wells Fargo Economics.
“I think all of this is causing more people to take on more debt for longer periods of time, and unfortunately, I don’t see that reversing anytime soon,” said Ted Rossman, senior sector analyst at Bankrate.
LendingTree began tracking credit card confidence at an opportune moment. Card rates soared in 2022 and 2023 after hovering in the 12% to 15% range through several prior years. The rise mirrored a broader surge in borrowing rates set off by the Fed in a series of historic rate hikes, a campaign triggered, in turn, by rampant inflation.
Before the December drop, the credit card confidence index last hit a low in June 2022, the month the annual inflation rate hit a 40-year high of 9. 1%. That month, 53% of cardholders said they were confident they could simply pay off their balance.
The credit card index peaked at 74% confidence in October 2020, an era of record low interest rates and federal stimulus relief. The index has gradually declined since then, reaching an annual average of around 66% in 2021, 62% in 2022, and 59% in 2023.
Women were to blame for the recent drop in the LendingTree index: only 40% said they were confident they would be able to pay off their card balance in December, compared to 64% of men.
This is a significant gap, but they consistently expressed less confidence than men over the five years of the survey.
Schulz, the LendingTree analyst, hypothesizes that women would possibly “take a more conservative approach to their finances” than men.
“Men would possibly be a little more self-confident than they really are,” she said, “while women would possibly be a little less self-confident than they may simply be. “
Catherine Valega, a qualified financial planner based in Boston who specializes in women’s finances, believes that female consumers would likely feel tense during the holidays due to their former role as gift-givers and home buyers.
“Women have a habit of needing to give gifts, and they also have a habit of managing their family affairs,” Valega said. “Who doesn’t spend more at the end of the year?
Industry analysts expect card rates to fall in 2024, especially if the Federal Reserve follows through on its forecast of modest rate cuts in the new year.
But even a two-point drop in the average cost of cards would bring them down to around 19%, a traditionally high level.
“I’m not sure other people realize that difference,” Rossman said.
So what if you’re a credit-card visitor and you’re underwater?
Rossman advises consumers with debt on a high-interest card to transfer some or all of the balance to a 0-interest card. These cards typically set the monthly interest rate at 0 for a period of 15 months or more, allowing consumers to focus their bills entirely on debt.
“If you use one correctly, you can save a lot on interest,” Rossman said.
More: How to get out of credit card debt and remain debt free
Consumers with lower credit scores, who may not qualify for a zero-rate offer, might need a nonprofit organization like the Consumer Credit Counseling Service. Credit counselors can interfere with the card company. “A lot of times they can negotiate anything like a 7 to 8 percent interest rate,” Rossman said.
Cardholders can also take advantage of some undeniable regulations for their card use, Valega said. The first is to qualify only what you can afford that month. Another is to set up automatic invoices on the card. Better yet, if you can choose the option to automatically pay the balance in full at the end of the month.
This article made the impression in USA TODAY: Credit Card Debt Rises as Some Struggle to Pay for Vacation Expenses