Americans now owe a total of $1.2 trillion to credit card companies as credit card usage surges along with high interest rates.
DENVER — With budgets shrinking for many families, some are turning to credit cards to pay for necessities like groceries and utilities. This trend has led to increased credit card usage and huge debt.
Thomas Nitzsche is a financial educator international money managementa nonprofit credit counseling agency. He has been engaged in financial consulting since its inception Great Recession and shared his thoughts on the U.S. credit card debt crisis reaching record levels.
This story has been edited into a Q&A format.
Q: What are your thoughts on the front lines of the debt crisis?
A: We are seeing a steady increase in the number of people seeking financial advice, especially among young people, Millennials and Gen Z. The current average debt load is well over $30,000 in unsecured debt. The average cost of living increased by 7% year-on-year.
We also found that the average monthly budget deficit was about two to three hundred dollars, and because credit cards are a familiar, relatively safe financial tool, people use them as an extension of their income to bridge that gap. But eventually people ran off the track. They’ve either maxed out their credit limit or can no longer make the minimum payments, which is usually when they start looking for help.
Q: Why do Americans have so much debt?
one: Credit card debt has been normalizing for a long time. But what has changed recently is that the cost of living has become so high, especially housing-related expenses like gas and transportation. You find yourself stuck in a cycle of making only the minimum payment. If you do this, you will be in debt for decades. About 40% of the people we work with have personal loan and credit card debt, which usually means they tried to consolidate at some point but either didn’t change their spending habits or experienced another financial hardship and relied on credit cards again.
Q: Are people putting basic needs on their credit cards?
A: Most of the clients I talk to lately will say, ‘I’m not doing anything extravagant here; I’m not taking fancy trips or buying extravagant things. It’s really just daily necessities. “We’re seeing this in the buy now pay later space as well, with around 30% of buy now pay later transactions currently being for groceries. If you start putting essential expenses onto your credit line that you may not be able to pay off until the next time you need those essentials again, that’s a very worrying sign.”
Q: With interest rates above 20%, what does this mean for people with debt?
A: When average interest rates are in the mid-20s (and as high as 30% on some accounts), if you only make the minimum payment, the majority of your payment will go toward interest. You only pay 1% of the minimum payment on principal plus interest, which means you’ll be stuck in a debt cycle almost endlessly. We can work with consumers to create a debt management plan that can result in deeper interest rate reductions, typically to around 7%, allowing them to become debt-free in an average of four years.
Q: Debt is a shame. What’s the first step to climb out of this hole?
A: It’s a very interesting dichotomy, we have so much debt in the United States but we don’t want to talk about it. Studies show that people would rather talk about almost anything than debt — politics, vaccines, sexual health, racial issues.
The first step is actually to open up and talk about it. The number of people contacting us through ChatGPT has increased sevenfold in the last year, indicating that more and more people are talking to AI about their situations. People also visit debt-free communities on Reddit. But beyond that, there are confidential non-profits like MMI where you can have free conversations with experts. The average tenure of our counselors is 13 years, and one of the most common things we hear is, “Am I the worst you’ve ever seen?” We certainly see it all.
Q: How does debt affect people’s mental health?
A: People describe it as being so frustrating and mentally draining. “I’m dealing with these payments, I’m robbing Peter to pay Paul, I have to work a third job and now I can’t see my kids.” Finances and mental health go hand in hand. It is truly a life-changing moment when people reach their debt-free date. It opens doors. Now I can finally buy a house, now I can finally get married, now I can finally quit my job and start my home business.
Q: Do certain age groups struggle more than others?
A: Millennials make up almost half of all the clients we currently consult with, but the largest increase is among consumers in their 20s, which is up about 26% year-over-year. Gen Z seems to be turning to us at the fastest speed right now. They don’t have as much debt as older generations, but the fastest growing need appears to be among the youngest adult generations.
Q: In a world filled with debt, what gives you hope?
A: It’s the resilience we see among our customers. They are determined to pay off their debts, pay what they owe, avoid bankruptcy, and do the right thing. Many people are working toward a greater goal. “I would love to own a home one day, but I know I can’t do it if I’m carrying $50,000 in credit card debt. I’m always inspired by people’s long-term goals and how they are ultimately able to achieve those goals once they pay off their debt.”
Q: What would you say to someone who feels hopeless or even reluctant to seek help?
A: Just understand that you are not alone and there are ways to get out of this situation. Americans tend to have a very black and white view of debt, like “I either have to do this myself or I have to declare bankruptcy.” Sometimes, they just aren’t educated about options like debt management plans, debt settlements, creditor hardship plans, and more. There are many options you can explore, but not many people are adequately educated.
