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How much credit card debt does the average American have? How much is too much? Here are your answers.
Although the best approach with credit card debt is to avoid it entirely, it's also an issue that gets more difficult to handle as the debt grows. It will be tougher to pay it off, and your credit utilization ratio will increase -- and that can be bad for your credit score.
According to our report on credit card debt statistics for 2020, the average American has debt that's big enough to affect credit scores. If you're carrying balances on your credit cards, then it's important to know how this impacts your credit and what you can do to correct it.
The average American's credit card debt
There are a couple of ways to measure credit card debt. We can look at the average credit card balance in the United States, which was $6,194 as of the second quarter of 2019. While that's a useful marker, it doesn’t tell us how much of their credit Americans use. We can calculate that using data from the Federal Reserve Bank of New York. In the first quarter of 2020, Americans had $893 billion in total credit card debt, compared to $3.93 trillion in total credit limits. That means the average American's credit utilization ratio is 23%.
You can calculate your own credit utilization the same way -- divide your current credit card balances by the combined credit limits of all your credit cards.
Why too much credit card debt is a problem
The most obvious issue with credit card debt is the high cost of interest, but credit utilization is one of the most important factors in your credit score. It makes up 30% of your FICO® Score, the most widely used credit score. If your credit utilization is too high, it can drop your score.
There's no cutoff point between good and bad credit utilization. It's more accurate to say that the lower your credit utilization, the better. But in general, 20% or below is considered a smart range to aim for, and consumers with the highest credit scores have credit utilization below 10%. The average American is at 23%.
Getting credit card debt under control
If you're one of the many Americans with too much credit card debt, you should prioritize paying down and eventually eliminating it. Less debt means less interest to pay, especially important when you consider how much credit card interest costs compared to interest for, say, personal loans. And you'll lower your credit utilization and boost your credit score in the process.
It's best to start with a strict budget and track all your spending. That way, you'll only be spending on necessities, and you can put all your disposable income toward your debt. If you have a good credit score, you may also want to look at balance transfer cards. Since these cards typically offer 0% intro APRs on balance transfers, you can refinance your credit card debt and save money on interest.
Of course, it's challenging to change your spending habits. If it was easy, no one would have any credit card debt to begin with. But with the right debt repayment strategies, you can get your debt down to $0.
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As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.
But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases until late 2021, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.
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