How Much Do You Owe? How Credit Card Debt Changed In 2020

by Michelle Black

Forbes Advisor

Saturday April 17, 2021

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Stock image  (Source:Getty Images)

The year 2020 changed life for families across the globe. Amid major adjustments like working from home, virtual schooling and new healthcare precautions, there was another area where Americans experienced change. The COVID-19 pandemic altered credit card habits for consumers nationwide.

During a year when millions were stuck at home and unemployment rates reached a record high, credit card debt took an unexpected downward turn. According to Experian, consumers lowered their credit card debt by an impressive 14% during 2020.

Read on to discover how your credit card management habits measure up to others. You'll also find some tips on how you can reduce your credit card debt and tools you can use if your debt seems overwhelming at present.
Average Credit Cardholder Debt

In an ideal world, consumers would pay off their credit card balances in full each month. When you pay off your statement balance by the due date, you can enjoy all of the perks of your credit card without the added cost of expensive interest fees.

Unfortunately, many Americans do not follow this good financial rule of thumb. Experian reported that 75% of credit cardholders carry a balance on their accounts. As a result, the average amount of credit card debt consumers owed in 2020 was $5,315.

Although this figure is still high, average credit card debt was down in 2020 compared with the previous year. In 2019, the average credit card debt was $6,194.


Average Credit Card Debt by Age Group

Different generations carry different amounts of credit card debt. According to Experian statistics, the average credit card balance is highest among consumers between the ages of 40 and 55 years old. Meanwhile, consumers between the ages of 18 and 23 years old owe the lowest amount of credit card debt on average.

States with the Highest Credit Card Debt

Consumers in different parts of the U.S. carry different amounts of credit card debt. Some states, like Iowa, have an average credit card debt number ($4,289) that's well below the rest of the country. At the same time, consumers in states such as Virginia, New Jersey and Maryland each have an average credit card balance of close to $6,000.

Here is a look at the 15 states with the highest credit card debt.

Cardholders Who Pay Off Their Cards Each Month

A report by the American Bankers Association states that the number of credit cardholders who paid off their monthly balances rose to 33.7% during Q3 of 2020. That figure represents an all-time high. However, there were still 40.7% of credit cardholders who revolved a balance from one month to the next.

According to the Federal Reserve, the average credit card interest rate was 16.28% in Q4 of 2020 (for credit card accounts that assessed interest). So, when you do carry over a balance on your credit cards from month to month, it could cost you a lot of money.

Here's an example of how much a 16.28% APR could run you on a $5,313 credit card balance if you only paid $110 per month (approximate minimum payment).

  • Time to Pay Off Balance: 78 Months (6.5 Years)
  • Total Interest Cost: $3,218

    Too much credit card debt also has the potential to hurt your credit scores — even when you pay your bills on time. Credit utilization (the relationship between your credit card limits and balances) is largely responsible for 30% of your FICO Score®.
    5 Ways to Lower Your Credit Card Debt in 2021

    As you review the figures above, it can help you understand how the amount of credit card debt you carry measures up to other consumers. Yet even if you owe less than the national credit card debt average of $5,313, that doesn't mean you should relax. If the credit card balance you carry over is above $0, you probably have work to do.

    Saving money and potentially improving your credit rating are two great reasons to pay down your credit card debt. Ready to get started? Here are five debt elimination strategies that might help you lower your credit card debt this year.

    1. Create a Credit Card Debt Pay-Off Plan

    Even if you can't pay off your debt in full, lowering the balances on your credit cards by any amount is usually a smart financial decision. Consistently chipping away at your account balances little by little can be an effective way to become debt free in the future.

    In addition to making small payments, you may also want to pay down your credit card debt in a specific order. The following credit card debt reduction strategies could take your efforts to the next level.

  • The Debt Snowball: List your credit card balances from highest to lowest. Make the minimum payment on each account. Then, concentrate all of your extra funds on the card with the lowest balance until you pay it off in full. Move to the card with the next lowest balance and repeat the process.
  • The Debt Avalanche: List your credit card debt based upon the interest rate of each account — from highest to lowest. Make the minimum payment on every card. From there, apply any extra funds toward the account with the highest interest rate until you pay it in full. Then, repeat the process on the account with the next highest APR.

    2. Use Your Stimulus Check

    On March 11, President Biden signed the third stimulus package into law — initiating a third round of stimulus checks for millions of Americans. Prior to the first stimulus payment, around 35% of Americans planned to use their relief funds to help cover bills.

    If you are one of the estimated 85% of Americans receiving a third stimulus check, you might consider using a portion of those funds to pay down your credit card debt. You can couple your payments with your preferred debt reduction strategy above and make even more headway.

    3. Use Your Tax Refund

    With the tax filing deadline for 2020 rapidly approaching, millions of Americans are expecting tax refunds in the coming months. For many people, a tax refund represents one of the largest influxes of cash they receive all year. You can make good use of any refund you receive from the IRS by applying it toward your high-interest credit card debt.

    4. Cut Spending and Expenses

    Many Americans made significant cuts to their spending and expenses in the past year. A recent survey by the digital bank One reveals that 46.54% of respondents had curbed their spending habits in response to the COVID-19 pandemic.

    Some of the ways survey participants saved money included less spending on:

  • Dining
  • Travel
  • Clothing
  • Online Shopping
  • Grooming Services (Nail Salon, Barber, and Hair Salon)
  • Home Entertainment (Subscription Services)

    When you find ways to lower your monthly expenses and reduce your spending habits, it can help you avoid new credit card debt. At the same time, you can use any extra money your new lifestyle frees up to reduce the debt you already owe.

    5. Consolidate Your Debt

    Is it going to take some time to pay down your credit card balances? If so, you might want to think about consolidating your debt as you work to eliminate it. Debt consolidation has the potential to reduce the amount of interest you pay and help you get out of debt faster.

    Two of the most common ways to consolidate credit card debt are as follows:

  • Balance Transfer Credit Card: A balance transfer credit card typically features a low or 0% introductory APR for a limited time. You can use the new account to pay off your existing credit card balances. Be aware that many balance transfer offers come with an added balance transfer fee to move your debt. So, you'll want to do the math to make sure that you'll save enough money in interest for the offer to make sense.
  • Debt Consolidation Loan: A debt consolidation loan can combine your existing credit card account balances into a new, single account. If you qualify for a lower interest rate than you're currently paying, the new loan may reduce the amount you pay overall and could shorten your repayment timetable as well. As an added bonus, these loans are installment accounts rather than revolving accounts (like credit cards). So, you might lower your credit utilization ratio dramatically when you use a consolidation loan, and possibly improve your credit scores.

    Keep in mind that you generally need at least fair to good credit to qualify for either of the consolidation options above. However, good to excellent credit generally unlocks the best interest rates and terms. If your credit is in bad shape, you may want to try to rebuild your credit before you apply for new financing.

    It's also critical to avoid charging up your credit cards again once you open a new account to consolidate the debt. If you make the mistake of continuing to overspend after a debt consolidation, you're paving the way for a financial and credit catastrophe down the road.


    Bottom Line

    Credit cards offer many benefits that can simplify and improve your financial life. They can help you build positive credit history when you manage them responsibly. They come with strong fraud protections that are tough to beat with any other form of payment. And many credit card accounts come with rewards that you can enjoy when you choose the account to pay for a purchase you needed to make anyway.

    But it is important to break the credit card debt habit. Otherwise, your credit card could hinder instead of help you.

    Are you currently struggling with credit card debt? Consider if one of the strategies above could help you dig your way out. It's usually possible to pay off your debt and fix bad habits without swearing off credit cards altogether.

    If your financial situation is dire and you owe so much debt that you can't keep up with your bills, you may need to seek professional help. A credit counseling service or bankruptcy attorney can review alternative debt solutions that might be a better fit for your situation.

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