The Best Way to Pay Off Credit Card Debt While Balances Are Soaring in the U.S.

The Federal Reserve Bank of New York began tracking credit card consumer debt in 1999. In 2024, it recorded the highest level of revolving consumer debt since records began, topping $1.17 trillion. For perspective, that number represents an average of over $7,200 per credit card holder. The trend shows no signs of slowing down, with the third quarter of 2024 alone representing an increase of $24 billion in unpaid credit card balances from three months prior.

Total household debts in the same quarter reached over $17.9 trillion. The number includes credit card debt, mortgage debt at nearly $12.6 trillion, auto loan debt at over $1.6 trillion, and home equity lines of credit at roughly $387 billion.

What Does It Mean?

While that’s a lot of technical chatter, the bottom line is that Americans are increasing their revolving debt load by an average of just under $100 per month on top of raising their other debt balances as well. Despite a tiny decrease in overdue balances among borrowers during the quarter, the amount of debt continues to go up, suggesting that it’s getting harder for consumers to make ends meet.

Evidence from a report by Lendingtree finds that those who don’t pay off their balance each month are going deeper into debt faster than those who do. According to the report, the average credit card interest rate is just under 22%, which includes numbers for those who pay in full monthly. Account holders that carry a monthly balance have an average APR of over 23%. Additionally, new credit card applicants face a still higher interest rate average of nearly $24.5%

The report data suggests that those who have a harder time keeping up with their payments are spending more for the convenience, and perhaps necessity, of having a credit card. This fact makes it even harder to catch up.

Depending on your news source and the publishing date of several other reports, the news may be better or worse than meets the eye. Many articles suggest that income is outpacing the increase in debt among Americans. However, conflicting reports that figure inflation costs into the equation paint a gloomier picture. Despite incomes increasing, debt payments and the cost of living continue to drive up debt amounts.

Bottom Line

The bottom line is that it’s getting more expensive to live and function, and credit cards and other revolving credit accounts appear by many to be the simplest solution in the short term. Unfortunately, as revolving debt increases, personal finances become more difficult to manage.

The revolving debt that credit cards represent is particularly harsh when it comes to maintaining a long-term budget. Credit card debt can be deceiving because of the low monthly minimum payment requirements that hover between 2% and 4% of your balance. The real problems with significant credit card debt are the associated high average interest rates and the nature of how that interest accrues.

Unlike simple interest installment loans that calculate interest on an annual basis, credit card debt compounds on a monthly basis. That means that the interest that was added last month to your credit card balance is now included in this month’s equation for determining your interest payment. (You’re paying interest on interest.) While that number isn’t necessarily significant in the short term, it can represent big figures over time.

Solutions

Suggesting you take on more debt to combat debt that you already have would be irresponsible. The real key is to reduce the amount of debt you owe. However, there are ways to minimize the amount of interest you’re paying on your revolving debt while doing that.

For some, the best way to pay off credit card debt involves establishing an installment debt consolidation loan with one of the best personal loan providers.

Credible offers a network of lenders on its platform that features no hard-credit-check pre-approvals and no fees for using its service. While you’ll want to be aware of origination fees and interest charges, many consumers experience significant short and long-term cost savings by consolidating their revolving debts through Credible and its partner companies.

Other solutions include taking advantage of introductory offers from the best balance transfer cards to lower your overall interest and pay down your debt faster than expected. Also, while your student loans have little to do with credit card debt, refinancing them can leave you with more money in your budget to help pay down other, higher-interest debts faster.