According to the FDIC, American households are falling further behind on their bills. In total they carry over one trillion dollar in revolving credit card debt. In addition to that, the number of credit cards opened continues to increase as well, with more accounts being opened, and total interest costs also increasing year over year.
Who has a credit card balance in 2017
The increasing amount of debt is hitting people of all ages, incomes, backgrounds, and employment positions. Senior citizens as well as the disabled are also falling further and further into debt. Lower income families also see more of their budget being consumed by interest costs. There are now over 170 million Americans with at least one credit card, a record high., according to the federal reserve.
Of those accounts that are outstanding, about 45 percent of them have a balance on them. This is where the one trillion in resolving debt comes from, as the majority of individuals with a balance carry it over from month to month. As for the 55% of people who have zero balance, they by default will almost pay it off monthly. Or they can also seek financial help, in the form of credit card hardship programs and other resources.
Some of this concern is hitting more low to moderate income families. The Federal Reserve shows that interest costs are up 15% for households making $33,000 per year. As the double whammy will be the increasing cost from higher Prime Rates set by the Federal Reserve.
Federal reserve is increasing Prime Lending Rates
With short term interest rates going up a few times per year (maybe quarterly) the monthly interest cost of this one trillion in resolving debt is slowly but steadily increasing. Ever quarter point increase that the Federal Reserve makes to rates will hit a household’s bottom line in that they need to pay more money for their monthly interest costs. Of course the total amount will be determined by the balance being carried over.
While every bank and lender charges a different interest rate on their credit cards, and there are different fees as well as costs involved, when families are thinking about the interest rate on a credit card they should plan on around 15% APR. This is if they have normal credit. If they fall into a “low” credit score, which many working poor families as well as those outside the banking system may have, they should plan on much higher rates.
If you take that average of 15% across the 1 trillion, then a quick bank of the envelope calculation means that the total interest cost faced by US households is 150 billion dollars. This is per year!! It is money in effect being sucked out of the economy. This has helped lead to banks having total profits of over $20 billion dollars in the third quarter of 2017.
The extra borrowing, as well as higher interest costs, is causing the one trillion in consumer debt to increase at rapid rates. Some lenders, such as Bank of America, are seeing 5 to 10% increase in total borrowing levels from 2016 to 2017. This is a huge jump, and can equate to anywhere from 50 to $100 billion more per year in total debt. So the problem, and cost to American families, is only bound to go higher and higher.