Americans pressured by ongoing credit card debt: NerdWallet

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January 9, 2024 at 2:10 PM

A new report from NerdWallet revealed that one-third of Americans believe they will be in credit card debt indefinitely. NerdWallet Credit Card Expert and Writer Sara Rathner joins Yahoo Finance Live to discuss the steady rise in household debt.

Rathner notes that credit card balances have climbed 16% over the past year while interest rates have spiked an average of 22%. "Incomes are just not keeping up with the cost of goods," she says, with the cost of consumer goods up 20% even as incomes rose only 12%. This widening gap leaves many Americans vulnerable to accumulating credit card debt they cannot easily pay off.

"A lot of times credit card debt is imagined as the result of frivolous spending," Rathner tells Yahoo Finance, continuing: "but, we've actually found that many Americans take on debt just trying to afford the necessities."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith.

Video Transcript

RACHELLE AKUFFO: Well, a NerdWallet report out just this morning found that over one third of people think they'll be in credit card debt forever. This as US consumer debt jumped nearly $24 billion in November, that's according to a report by the Fed this week. Well, let's take a deeper dive into what's happening with credit card debt with Sara Rathner, NerdWallet credit cards expert and writer.

Thank you for joining me in this morning. Very disheartening to imagine that a third of people think they're going to be in debt forever, but break down the types of debt that we're talking about here.

SARA RATHNER: So we covered not just credit card debt, but also other forms of borrowing like mortgages, student loans and auto loans.

RACHELLE AKUFFO: And so with that in mind then, which are the debt that's really been plaguing people? When we look at that sort of trillion dollar balance sheet of credit card debt that people have, it's not just how much they have but how long they're also having it. So break that down for us and what came out of the study that surprised you.

SARA RATHNER: Right. So what surprised me really was that credit card debt is up 16%, and that's at a time where interest rates are very high, an average of just over 22%. Compare that to two years ago when credit card interest rates were around 17% on average, that's a lot of extra money that consumers are paying into those interest payments.

RACHELLE AKUFFO: And so how much of that is just down to what we've seen with high interest rates and the Fed versus something that's really been building up over time and how people have been managing their savings?

SARA RATHNER: It's been tough over time for a lot of Americans, because incomes are just not keeping up with the cost of goods. Costs of goods have gone up to 20%. Incomes are just up only 12%, that's since 2019. So the last couple of years, people have just haven't been able to keep up.

RACHELLE AKUFFO: And the rate of which indebted Americans are able to pay off their debt, how much has that changed because of high interest rates?

SARA RATHNER: It is harder to keep up with debt payments, and so consumers are-- like you cited the stat early on in this segment that many consumers feel that they will be in debt forever. And so those interest payments just become another line item on the household budget that will just stick around much like utility payments or rent.

And so that does create a hardship where money is going into interest instead of into something else that would benefit each consumer.

RACHELLE AKUFFO: So Sara, is it-- is it mostly an income problem or is it a spending problem when we think about how people are managing debt right now?

SARA RATHNER: So income is part of it, of course, and that is combined with the increasing costs of the goods that we need to buy. A lot of times credit card debt is imagined as the result of frivolous spending but we've actually found that many Americans take on debt just trying to afford the necessities and just trying to make ends meet.

And so it's not necessarily frivolous spending, it's spending on things like food and transportation, housing and medical costs.

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Video Transcript

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