Credit Card Debt Is Soaring. Here’s How You Can Escape It

The collective American credit card bill just reached $1.25 trillion. That’s roughly 3% of the total U.S. Gross Domestic Product – the sum of everything we produce. But with the average credit card interest rate at a whopping 21%, this debt is nearly guaranteed to continue soaring.

Here’s how it boils down: The average household has roughly $9,300 in credit card debt. Mix this with elevated interest rates, and many find themselves in a perpetual debt cycle. A recent Bankrate survey indicates that 47% of credit cardholders carry a balance, and 22% don’t believe they’ll ever pay it off. What’s more, according to YCharts data, credit card delinquencies are reaching their highest levels in 15 years.

Economists and government officials alike have warned about the heavy burden this places on the economy, with even President Trump proposing interest rate caps to give relief during his 2024 presidential campaign.

Here’s what you need to know about national consumer credit card debt, what to do if you’re falling behind on credit card payments, and how to escape the cycle if you’re currently in it.

Brett Holzhauer is a senior financial writer and editor with over a decade of experience covering personal finance, investing, and the U.S. economy. His work has been featured in Forbes and CNBC, where he focuses on helping readers make sense of real-world financial challenges.

What’s Behind the Record Rise in Credit Card Balances?

Credit card debt has historically climbed steadily. However, in 2020, it plummeted as consumer spending halted. Total revolving credit card debt shrank in the 12 months following the economic closure in March 2020. But as lockdowns and other restrictions lifted, the spending floodgates opened. Since 2021, the overall debt has ballooned by over 48% as consumers have become more reliant on credit cards to make ends meet.

However, this mountain of debt isn’t solely the result of consumer spending habits. In an effort to combat inflation, the Federal Reserve rapidly raised interest rates beginning in 2022. As borrowing costs increased, credit card issuers also raised their rates, making it more expensive for Americans to carry balances from month to month. In February 2022, the average credit card interest rate was about 14.5%; today, it’s closer to 21%. This makes revolving credit card debt even more expensive.

Why Minimum Payments Keep You Trapped

Credit cards can quickly become financial quicksand. Because of their convenience, low monthly payments, and high interest rates, they can quickly land consumers in a financial bind.

Here’s an example of someone with $5,000 in credit card debt who is only paying the minimum payment.

After two full years of minimum payments, the principal has only dropped by about $300. That’s the minimum payment trap, and it doesn’t include any late fees or annual fees your issuer may charge along the way.

What Happens When You Fall Behind on Credit Card Payments?

Falling behind on credit card payments can make the situation significantly worse. Here’s what can happen, and what you should do if you find yourself in this situation:

• Late fees: Missing a payment may result in an additional fee being added to your balance.
• Higher interest costs: Some issuers may impose a penalty APR after repeated missed payments, making your debt more expensive.
• Credit score damage: Late payment marks can be on your credit report for up to seven years.
• Collection activity: Seriously delinquent accounts may be sent to collections or sold to debt buyers.
• Potential legal action: In some cases, creditors may pursue legal action to recover unpaid debt.

The longer an account remains unpaid, the fewer options borrowers typically have and the more difficult it becomes to get back on track. For a full breakdown of how the timeline progresses, our guide to what happens when you stop paying credit cards covers each stage — from the first missed payment through charge-off and beyond.

What to Do Right Away If You’re Behind

If you’re struggling to make payments, taking action early is the best option. Credit card issuers are often more willing to work with borrowers before accounts become seriously delinquent.

Consider taking the following steps:

• Contact your card issuer immediately: Explain your situation and ask about available assistance.
• Ask for a reduction in your interest rate: A LendingTree study showed that over 80% of people who asked their credit card issuer for a lower APR received it.
• Continue making payments if possible: Even the minimum payment can help you avoid additional penalties and damage to your credit score.
• Review your budget: Look for opportunities to reduce spending and free up cash for debt repayment. Consider using a budgeting app to simplify your finances.
• Avoid adding new debt: Focus on stabilizing your finances before taking on additional borrowing.

The most important thing is not to ignore the problem. Reaching out for help early can often prevent a temporary financial setback from becoming a long-term debt crisis.

How to Get Out of Credit Card Debt

The good news is that credit card debt is often one of the most manageable forms of debt to tackle because there are multiple strategies available.

Here’s what you can do today to address it.

Start With a Debt Inventory

Many people don’t know exactly how much outstanding debt they have. It’s best to break out a pen and paper, and create a table with the following information:

This exercise can help you identify which debts are costing you the most and where your repayment efforts will have the biggest impact.

Choose a Payoff Strategy

Once you understand your debt, choose a repayment strategy that fits your personality and financial situation.

Both strategies work in their own ways, but picking one that matches your personality and own financial psychology will make the debt paydown process easier.

Tools to Explore

• Debt snowball calculator
• Debt consolidation calculator
• Personal loan calculator
• Home equity loan calculator

Look for Ways to Lower Your Interest Rate

For many people, the principal balance isn’t the issue — it’s the staggering interest rates. So before you start the paydown process, consider these routes to get your interest rate down quickly:

• Balance transfer credit cards: Some cards offer introductory 0% APR periods that can help you pay down debt faster.
• Debt consolidation: Combining multiple high-interest balances into a single lower-interest loan may reduce your monthly costs.
• Negotiating with your card issuer: If you have a good payment history, your issuer may be willing to lower your interest rate.
• Seek professional guidance if needed: A nonprofit credit counseling agency may be able to help you create a plan.

Further Reading

• Alternatives to Bankruptcy: Try This Option First
• How Late Can You Be on a Car Payment Before You Lose Your Car?
• Late Car Insurance Payment? What Happens and How to Avoid Cancellation
• Debt Consolidation with Bad Credit: What to Expect and How to Qualify
• Debt Consolidation vs. Balance Transfer: Which Saves More?
• Credit Card Debt Forgiveness: What’s Real and What’s a Scam
• What Happens If I Don’t Pay A Collections Agency? What You Need To Know

Conclusion

If you’re struggling with credit card debt, know that you aren’t alone and there are pathways to dig yourself out of it. Rising costs and higher-than-normal interest rates have pushed Americans to their financial brink, and credit cards typically become the default option.

The best way to tackle any financial mountain is to write everything down, knowing exactly what debts you have, how much money you bring in, and how you can budget to begin paying down your debt. This can give you the financial blueprint you need to eliminate your credit card debt.