Credit card usage has increased among Americans, according to the Federal Reserve Bank of Atlanta. According to the organization, the average balance on a credit card will increase by 2.63% by the end of 2020. It’s estimated that the average American household will have a credit card balance of $5,300 by then. Using a credit card for everyday purchases is also becoming more popular. In fact, according to the Federal Reserve Bank of Atlanta, the number of people who use credit cards will rise to 27 percent in 2020.
Average credit card debt per borrower increased by 2.63% since last year
According to the Federal Reserve’s latest Survey of Consumer Finances, average credit card debt per borrower increased by 1.63% in the second quarter of 2019. While this isn’t surprising, the rise in credit card debt is not surprising considering the rising cost of living. Generally, people who earn less than $16,290 have an average balance of $3,830, whereas people who make more than $290,160 have an average balance of $12,600.
Despite the growing debt levels, few Americans are defaulting on their debts. The number of people who defaulted on their debts fell modestly in the second quarter, while average credit card balances for Gen Z and Millennials increased the most.
Generation X borrowers had the highest balances of any generation
According to a recent study, Generation X borrowers had the highest average balances of any generation. This is particularly significant because the group’s financial habits have not changed much since their early twenties. Most of them had their first credit card by the age of twenty-four, and they are accustomed to using plastic. They also have not yet entered the expensive “house and kids” phase.
This generation is still paying off their college søk forbrukslån loans and looking after their aging parents. Many are also paying off their student loans, and are expected to continue to earn more as Boomers retire. In addition to accumulating credit card debt, Gen X borrowers are also juggling many financial obligations, including student loans and mortgages.
Cash back is the most popular reward option
Cash back rewards are a great way to reward yourself for using your credit card. American credit cards typically offer a percentage of cash back on purchases. Cash back credit cards come with different rules for earning points. For example, some cards may offer a higher percentage if you spend in a specific category, like gas or groceries. However, you can also get points by spending in other categories.
Cashback programs are usually designed to appeal to a wide range of consumers. As such, they have different plans and may not be customized to your specific needs. This means you may not have much power to negotiate better rates for cash back rewards.
Refinancing high-rate credit card debt
For Americans who are stuck in high-rate credit card debt, refinancing may be the best option. This process can save thousands of dollars in the long run. As the Federal Reserve increases its federal fund’s rate by another 25 basis points this week, more consumers will face higher rates on existing balances. Investors are now pricing in a further 200 basis points hike by the end of this year. The higher rates will filter through to credit card debt within a month, and apply to both existing balances and new purchases.
Credit card use fell by 10% in the first three months of 2009, as banks reduced consumer lending during the recession. However, in April 2011, the Dodd-Frank Wall Street Reform Act made credit cards more regulated and aimed to reduce high-rate debt. Despite the decline in credit card usage, the average American household owed $8,398 at the end of April. Credit cards came into use in the late 1950s and have since given Americans more spending power than ever. However, they have also created financial disasters for many Americans.