Credit Card Debt: The Definitive Guide

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credit card debt guide
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This is a complete guide to credit card debt. In this guide, you’ll learn:

  • How credit card debt works
  • The average credit card debt per U.S. household
  • How to manage your credit card debt
  • And more

Credit Card Debt Basics

In this section, you’ll learn what credit card debt is, the difference between revolving and non-revolving credit, and how your APR impacts how much debt you have. Then, you’ll see it all in action with an example of credit card debt.

What is credit card debt?

Credit card debt results when you make a purchase with a card issued by a credit card company. At the end of a billing cycle, your credit card issuer will send you a statement with the total amount that you owe. If you do not pay off the full amount, the remaining balance is considered your credit card debt.

Debt accumulates based on interest and penalties until you’ve repaid all of the money that you owe to the credit card issuer.

Revolving vs. non-revolving credit

By borrowing money from a financial institution, you are using credit. It is called credit because it is money that the issuer is lending to you — or issuing as a credit — and expecting to be paid back.

There are two types of consumer credit: revolving and non-revolving credit.

Revolving credit is a type of credit that you can repeatedly use up to a certain limit and pay back over time. Once you’ve paid it back, your credit limits refill so you can reuse and repay them again. The cycle repeats until you close the account. Credit cards are a type of revolving credit.

Non-revolving credit, on the other hand, is a type of credit issued by a financial institution as a lump-sum on a one-off basis. You must repay the credit in installments over a fixed period of time. After it’s paid off, you cannot reuse it. A mortgage, student loans, or an auto loan are all types of non-revolving credit.

How APR impacts credit card debt

So how does someone even accumulate debt? And why does it keep growing? As we mentioned, your debt grows primarily due to interest.

Your credit card balance comprises two things. The first is your principal balance, or the amount that you’ve actually borrowed from the credit card issuer. The second is interest, or the percentage that is added to your bill each billing cycle that you do not pay off your full balance.

The percentage that determines how much interest you owe is called the card’s annual percentage rate, or APR. The APR for each credit card is different, and it’s set by the credit card issuer. In Q4 2021, the average credit card APR in the U.S. was 14.51%.

Credit card debt example

Say you use your credit card to pay $1,000 for a new sofa. Let’s also say that your credit card APR is 14.51%.

At the end of your billing cycle, your credit card issuer will send you a bill with a balance of $1,000.

Best case scenario: You pay off the full balance ($1,000). You will not owe any interest, and you will avoid credit card debt for this billing cycle.

However, if you only pay the minimum amount due — say $50 — then you’ll carry a balance of $950 over to next month. At that point, your credit card will begin accruing interest at a rate of 14.51%, typically on a daily basis. The combination of your principal balance plus the interest that you owe is considered your outstanding credit card debt.

U.S. Average Credit Card Debt Statistics

In this section, you’ll learn key facts and figures about average credit card debt in the U.S. in 2021. You’ll also see how those numbers compared to the average credit card debt in 2020. Then, you’ll get a peek into how they were broken down by household.

In Q3 2021, credit card debt in the U.S. totaled $800 billion, according to Statista, a 1.23% decrease from Q3 2020.

When it came to households, average credit card debt was also down, according to Experian:

Average credit card debt per household: 

  • 2021: $5,525
  • 2020: $5,897

Average number of credit cards: 

  • 2021: 3
  • 2020: 3

Average number of retail credit cards: 

  • 2021: 2.33
  • 2020: 2.42

Average revolving utilization rate: 

  • 2021: 25%
  • 2020: 26%

Credit Card Debt Today

In this section, you’ll learn about common causes of credit card debt. You’ll also see how credit card usage changed throughout the COVID-19 pandemic.

There’s no getting around it: American consumers rely heavily on credit cards. At first glance, it may appear to be a result of discretionary and leisure spending. Sure, some credit card debt is a result of reckless spending. However, according to Cushion’s research, many consumers rely on credit cards to pay their essential bills. This includes monthly costs such as utility bills, phone, internet, and insurance.

Why do consumers lean on credit cards to pay these recurring bills? Often it is because there is not enough money in their checking accounts to cover the expenses, and they want to avoid overdraft fees.

Despite this, the average credit card debt for consumers actually decreased throughout the COVID-19 pandemic. According to the Federal Reserve, there are a number of reasons for this:

  • Decrease in purchase volume due to lockdown
  • Higher paydowns and prepayments
  • Fewer credit cards issued by credit card companies

Stimulus checks contributed to some consumers being able to pay down outstanding credit card debt, according to the Federal Reserve.

However, with businesses and travel beginning to reopen, credit card usage is returning to pre-pandemic levels. And with it, credit card debts are beginning to tick up again.

Credit card on a green and yellow gradient background

Why Is Outstanding Credit Card Debt So Damaging?

In this section, you’ll learn about good debt versus bad debt and how credit card debt fits into the mix. You’ll also see why the debt cycle is so difficult to escape.

Good debt vs. bad debt

Credit card debt is not considered a good thing, but there is a reason for that. It’s about more than just the feeling of regret when the time comes to pay your bill.

Contrary to popular belief, not all debt is bad debt. There is a difference between good debt and bad debt.

Good debt is an investment that increases your net worth or sets you up for financial success in the future. Types of good debt include: a mortgage, home equity loans or lines of credit, small business loans, and student loans (in most cases).

Bad debt is something that you pay for with credit that depreciates over time or does not generate income for you. It drains wealth and doesn’t have the prospect of paying itself off. Credit cards, auto loans, and payday loans are all types of bad debt.

The debt cycle

Most, if not all, of consumers with credit card debt will tell you that it is financially and mentally exhausting trying to escape the debt cycle.

This is when you continually spend more money than you bring in. Because credit cards are a form of revolving credit, you can continue to use the credit as long as you make your minimum payments and stay beneath the credit limit set by your credit card issuer.

As your principal balance grows, so do your interest payments. This is because interest compounds. When interest is added to your principal balance, next month your interest will be calculated based on both your principal balance as well as the interest that you’ve already accrued. Interest on interest, in other words.

Compound interest is detrimental to your credit card debt and financial health. This can lead you to default on your debt payments, rack up fees, or go bankrupt.

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Managing Credit Card Debt

In this section, you’ll learn how you can take action to overcome credit card debt. These tips will not be one-size-fits-all. Your debt journey is personal. Your debt solution should be too.

Monitor and lower your credit card APR

When it comes to finances, you have a lot more control than you might realize.

One way to take control of your finances: Take a proactive approach to your credit card APR. You might not have luck negotiating your interest rate with your credit card company initially. Think of this as something you can do once you’ve established to your issuer that you’re a good borrower.

Interest rates fluctuate with the market. Both you and your lender have the power to tip the scales. Some reasons that you might want to lower your interest rate include:

  • Your financial situation has improved since becoming a borrower
  • You’re experiencing financial hardship

In both cases, you can reach out to your lender to negotiate a lower interest rate.

If you had a low or mid-range credit score when you signed up for a credit card, your lender may have assigned you a higher interest rate. This is to offset the risk of bringing you on as a customer. But if you’ve shown your creditor that you are a responsible borrower, you can use this as leverage to negotiate a lower interest rate.

If you’ve been laid off from a job or have recently experienced a personal emergency, you can talk to your lender about your options. To start, you can ask them to lower your interest rate. This will slow down the rate at which your interest accrues and help you get a handle on your credit card debt.

Make a payment strategy

The best method for paying off credit card debt is the one that you can stick with. There are several approaches to paying off your debts if you have multiple credit cards.

Debt avalanche

With the debt avalanche approach, you knock out the debts with the highest interest rates first. First, you make the minimum payment on each of your cards. Then, you dedicate any remaining money to the card with the highest interest rate.

With this system, you have a higher likelihood of saving time and money on your journey to financial freedom.

Debt snowball

The debt snowball approach uses motivation as a tactic for paying off your debt. First, you pay the minimum amount on each of your cards. Then, you dedicate any remaining money to the card with the lowest balance. The idea is that you will pay off the cards with the lowest amount of debt quicker. In turn, this will motivate you to keep working toward your goal of being debt free.

Make more than the minimum payment

It is crucial that you pay at least the minimum amount required by your credit card issuers by your due dates. If you don’t, your lender will charge you late fees and other penalties. This will make it even harder for you to pay down your debt in the future.

Better yet, pay more than the minimum amount when possible. Not only will your overall balance decrease, so will the amount of interest that you accrue. Remember: Interest compounds.

To make your job a little easier, don’t think about credit card payments as all or nothing. Break your payments up into smaller amounts throughout the month so you can more evenly distribute them. Then when you have a little extra cash, put it toward your credit card debt. It doesn’t matter how or when you repay your credit card debt — as long as you make at least the minimum required payment by the due date.

Automate your payments

Sometimes the hardest thing about paying bills is just remembering to pay them. The average American pays 8–15 bills per month, and 75% of those bills are paid directly through billers’ websites. That’s a lot of usernames and passwords to remember, as well as due dates and cash flow to keep track of.

Setting up automatic payments for your credit card bill can help you avoid late payments or missed payments. Autopay is convenient, eliminates clutter, and can actually cut down the cost of your bills in some cases.

However, if you set up autopay, you have to be wary of overdraft fees and overpaying on your bills. When you pay your bills automatically, you are not forced to review your bills, which can help you identify when there are issues with your services.

So if you use autopay, be sure to check in on your bank account regularly to make sure there are enough funds in there. You should also check your bill statements to ensure you are not paying for things that you no longer want or need.

Talk to your credit card issuer

It’s important to be open and honest with your credit card company. This is especially true if you are experiencing financial hardship. Financial hardship may include: being laid off, going through a personal emergency that has impacted your finances, or dealing with a natural disaster.

Although you might feel that there is nothing that your financial institution can do, these companies actually have hardship plans built into their offerings for situations like these.

Think of it like this: Credit card companies do not want their customers to default on payments. If you do, that means that they are losing money as well. They’d rather work with you on a plan to help you repay your debts than cut you loose. Reach out to your credit card issuer, let them know about your situation, and find out what kind of financial relief they can offer.

Look into debt relief

If you’ve budgeted, tried to pay off your credit card debt on your own, and you’re not able to escape it, it may be time to look into debt relief. There are four major ways that you can approach debt relief: debt consolidation, debt management, debt settlement, and bankruptcy.

Debt consolidation

Debt consolidation is a personal finance strategy that allows you to combine multiple bills, loans, or credit card balances into a single monthly payment. You can consolidate debt using a balance transfer credit card or a debt consolidation loan.

balance transfer credit card can be a smart move if you qualify for one. With a 0% introductory APR, you can pay off your credit card debt quicker and with less interest if you make consistent, on-time monthly payments.

However, it’s important to maintain a strict monthly payment schedule with balance transfers. The standard introductory time period for a balance transfer credit card is 6 to 18 months. If you do not repay your credit card debt by the end of the introductory period, a standard credit card interest rate will kick in. Unfortunately, the post-introductory APR is usually higher than the standard credit card APR. You should also watch out for balance transfer fees.

A debt consolidation loan, on the other hand, is a type of personal loan that typically comes with a low introductory rate that expires after a certain period of time (similar to a balance transfer credit card).

Many lenders pre-qualify you for debt consolidation loans. When you’re pre-qualified, the lender only runs a soft inquiry on your credit report rather than a hard inquiry, which means your credit score will not be damaged.

Your credit score does, however, determine the rates and terms of your personal loan. In general, someone with a good credit score is rewarded with lower interest rates and larger personal loan amounts. Someone with a lower credit score won’t have access to these offers.

Debt management

You can make a debt management plan with the help of a credit counselor or credit counseling agency. With a debt management plan, you follow a structured monthly payment program based on your financial situation.

Since a debt management plan does not involve a loan, there is no credit check process that would affect your credit score. You also have access to reduced rates through many agencies, your program is carefully tailored to fit your financial needs and abilities, and you have access to financial counseling and assistance along the way.

Unfortunately, debt management plans often come with monthly fees. You may also not be able to incorporate all debts into your repayment plan, as secured debts — such as mortgages and auto loans — are not eligible through many agencies.

Debt settlement

If you are unable to pay the full amount of your credit card debt, you can work out an agreement with your lender to pay a smaller amount. This is called a debt settlement, debt relief, or debt adjustment. Essentially, you agree to give your lender a lump-sum payment in exchange for part or all of your debt being forgiven. How much you owe your lender is typically a percentage of how much you’ve borrowed.

A debt settlement company or credit card debt attorney can work as an intermediary between you and your creditor to reach a settlement. Once you’ve come to an agreement, everything goes in writing.

While debt settlement can save you money, it can have negative consequences. Your credit score can drop significantly, your relationship with the creditor may be damaged, and you will likely have to pay a good amount of money to the debt settlement company or attorney that helps you find a solution. It’s always important to weigh your options before rushing into a credit card debt solution.


If you’ve racked up credit card debt that you don’t foresee yourself being able to repay, you may want to consider bankruptcy. Filing for bankruptcy should be a last resort, as the financial and personal consequences can be significant.

Bankruptcy is a process where you liquidate assets (e.g. real estate, stocks, material goods, etc.) or create a repayment plan to pay off your debts. While bankruptcy does enable you to have a fresh start, it also comes with personal and financial downsides. Not only could you still be responsible for some outstanding debt, bankruptcy can impact your job, future rental opportunities, and your ability to obtain credit in the future.

Last Updated on January 01, 2024
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Disclaimer: The information provided in this website is for educational purposes only and should not be considered as financial advice. Consult with a financial professional for personalized guidance regarding your specific situation.

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