What Is the Average Credit Card Debt in the US?

How rising interest rates affect credit card debt

When the Federal Reserve increases the federal funds rate, it creates a domino effect that typically leads to -- among other things -- banks increasing the variable APR on credit cards.

The federal funds rate is still holding at its height of 5.25% to 5.5% when the Fed last voted to increase it in July.

When your credit card APR rises, you accrue more interest on unpaid balances, which can add months or even years to your repayment time frame while costing you more overall. That’s why experts highly recommend paying your variable interest debt off as soon as possible.

How credit card debt impacts your credit score

The more credit card debt you have, the more likely it will impact your credit score. Your credit utilization -- the amount of debt you carry compared with the amount of credit you have available -- plays a significant role in determining your credit score.

As your credit card debt grows, your credit utilization ratio typically increases, causing your credit score to drop. Lenders may see you as a riskier borrower if you use a high percentage of your available credit. That can lower your chances of approval for other credit cards or loans and increase the interest rate you’re offered on credit products.

When you pay down your credit cards in full each month, you may see an increase in your credit score as your credit utilization decreases. Paying your bill on time also helps boost your credit score.

Ways to pay off credit card debt

Juggling everyday expenses, saving money and paying down debt can be challenging. If you’re struggling with credit card debt, here are a few debt payoff methods to help clear your balance.

1. Create a budget and repayment goal

There may be room in your budget to put more money toward your credit card debt. Take a look at your expenses to see where you can scale back, even temporarily. Consider canceling streaming subscriptions or services you no longer use. Budgeting apps can also help you see where your money is going and if you can cut any expenses. Once you understand your budget, you can create a debt repayment plan.

There are many different strategies for repaying credit card debt, which usually advise paying more than the minimum payment to reduce interest and help pay down your debt sooner.
Among two of the more popular options: 

• Avalanche method. With this method, prioritize your debts by concentrating on the card with the highest APR. You’ll still pay the minimum on all your cards but put extra money toward the card with the highest interest rate. When that card is paid off, you’ll put all the money toward the next highest APR card. This method can help you save the most on interest.
• Snowball method. Alternatively, you could pay down the cards with the smaller balances first, which can help you build momentum and see more progress faster. 

2. Get a balance transfer card 

Opening a credit card with an introductory 0% APR on balance transfers can help you pay off your credit card debt while saving money on interest. A balance transfer card lets you combine different credit card balances onto one card so you can combine your debts into one monthly payment plan and potentially avoid accruing interest during the introductory period. 

Balance transfer cards that offer 0% introductory periods typically come with balance transfer fees that you should consider. And, if you can’t pay your balance in full by the end of the introductory period, the credit card’s APR will kick in, and you’ll begin accruing interest on your outstanding balance.

Applying for a new credit card requires a hard credit check, which may ding your credit score temporarily.

3. Consolidate your debt 

If you need to pay off several credit cards, it may be more affordable to consolidate your debt with a personal loan. You’ll have a fixed interest rate and predictable monthly payment, which can be easier to manage than multiple credit card payments with different APRs. A personal loan also tends to have a lower interest rate than most credit cards.

Applying for a loan also requires a credit check and the lender may charge an origination fee.. 

4. Consider adding a new income stream

If you want to pay off your debt faster, consider taking on a side hustle to earn some extra money. Side hustle opportunities might include starting your own business, freelancing, driving for ride-hailing services or even walking dogs. You also can try to sell gently used items that you don’t use to put a few extra bucks toward your debt. 

As you earn more money from your side hustle, add it to your debt payoff plan.