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Average Household Credit Card Debt in the U.S. in 2018

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Even as household income and employment rates are ticking up in the U.S., credit card balances are approaching all-time highs. What’s behind the growth of credit card spending among consumers? In an updated report on credit card debt in America, MagnifyMoney analyzed credit debt trends in the U.S. to find out exactly how much credit debt consumers are really taking on and, crucially, how they are managing their growing reliance on plastic.

Key Insights:

  • Credit card debt is on the rise with the average indebted household carrying $8,683 in credit card debt. That’s an increase of more than $650 per household compared with this time last year — a full 8.6 percent increase. Despite the rise in debt levels, current debt levels are 22.8 percent less compared with October 2008, when household credit card debt peaked at $11,248.
  • Credit card balances and credit card debt are not the same thing. The 78 million Americans who pay their bill in full each month have credit card balances reported to the major credit reporting bureaus.
  • Assessing financial health means focusing on credit card debt trends rather than credit card use trends.

Credit Card Debt in the U.S. — By the Numbers

Credit Card Use

  • Number of Americans who use credit cards: 200 million1
  • Average number of credit cards per consumer: 2.32
  • Number of Americans who carry credit card debt: 122 million3

Credit Card Debt

The following figures only include the credit card balances of those who carry credit card debt from month to month.

  • Total credit card debt in the U.S.: $542 billion4
  • Average credit card debt per person: $4,4535
  • Average credit card debt per household: $8,6836

Credit Card Balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

  • Total credit card balances: $808 billion as of July 2017, an increase of 8.1 percent from the previous year.7
  • Average balance per person: $4,0418

Who Pays Off Their Credit Card Bills?

  • 45 percent of households pay off their credit card bills in full each month
  • 28 percent of households carry a balance all year
  • 26 percent of households sometimes carry a balance9

Credit Card Balances vs. Household Credit Debt

At first glance, it may seem that Americans are taking on near record levels of credit debt. Over a quarter (28 percent) of American households9 carry credit card debt from month to month, and another quarter (26 percent) carried credit card debt at least once last year.

If you look at the total credit card balances among U.S. households, the figure appears astronomical — $808 billion. But that figure includes households that are paying their credit debt in full each month as well as those that are carrying a balance from month to month.

While credit balances are increasing, the amount of debt that households are carrying from month to month is somewhat lower than it was leading up to the 2008 financial crisis. The total of credit card balances for households that actually carry debt from month to month is $542 billion.

As of the third quarter of 2017, households with credit card debt owed an average of $8,6833 That is a decrease of 22.8 percent compared to October 2008, when household credit card debt peaked at $11,248.10J

And as household incomes have risen in recent years, this has helped to lower the ratio of credit card debt to income. Today, indebted households with average debt and median household incomes have a credit card debt to income ratio of 14.7 percent.11 Back in 2008, the ratio was 20.1 percent12.

Delinquency Rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

In the second quarter of 2010, serious delinquency rates on credit cards were 13.74 percent of all balances owed, nearly twice as what they are today. Today, credit card delinquency rates are down to 7.47 percent.13

How We Calculated Household Credit Card Debt

Credit card debt doesn’t appear on the precipice of disaster, but the recent growth in balances is cause for some concern. Still, our estimates for household credit card debt remain modest.

In fact, MagnifyMoney’s estimates of household credit card debt is two-thirds that of other leading financial journals. Why are our estimates comparatively low?

A common estimate of household credit card debt is:

This method overstates credit card debt. The Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) does not release a figure called credit card indebtedness. Instead, they release a figure on national credit card balances. Representatives of the Federal Reserve Bank of New York and the Philadelphia Federal Reserve Bank both confirmed that the CCP includes the statement balances of people who go on to pay their bills in full each month.

Another method of estimating household credit card debt is to use the estimate from the Federal Reserve’s Survey of Consumer Finances. The 2016 survey found that the average household with credit card debt had $570014 in debt. Unfortunately, households in this survey tended to underreport their debt according to another Federal Reserve study.

To find a better estimate of credit card debt, we found methods to exclude the statement balances of full paying households from our credit card debt estimates. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Even though full payers pay off their statement balance each month, their balances are included in the CCP’s figures on credit card balances.

To exclude full payer balances, we turned to academic research outside of the Federal Reserve Banks. The paper, Minimum Payments and Debt Paydown in Consumer Credit Cards, by Benjamin J. Keys and Jialan Wang, found full payers had mean statement balances of $3,412. We used this figure, multiplied by the estimated number of full payers to find the statement balances of full payers.

Our credit card debt estimate is:3

Per Person Credit Card Debt

Once we adjust for these effects, we see that an estimated 122 million Americans carry $542 billion of credit card debt from month to month. Back in 2008, 20 million fewer Americans carried debt, but total credit card debt in late 2008 hovered around $589 billion.16 That means people with credit card debt in 2008 had far more debt than people with credit card debt today.

Average credit card debt among those who carry a balance today is $4,453 per person2 or $8,683 per household.3 In late 2008, the 102 million17 Americans with credit card debt owed an average of $5,858 per person10I or $11,248 per household.10J

Credit Card Debt: Do We Know What We Owe?

Academic papers, consumer finance surveys, and the CCP each use different methods to measure average credit card debt among credit card revolvers. Since methodologies vary, credit card debt statistics vary based on the source consulted.

MagnifyMoney surveyed these sources to present a range of credit card debt statistics.

 

Low Estimate

High Estimate

People with Credit Card Debt

110 million18A

134 million18B

Households with Credit Card Debt

55 million19

69 million20

Median Household Credit Card Debt

$2,30021

$3,50022

Average Household Credit Card Debt

$5,70023

$9,60024

MagnifyMoney Estimated Credit Card Debt per Person

$4,3515

$4,5555

Are We Paying Down Credit Card Debt?

A Pew Research Center study25 showed that Americans have an uneasy relationship with credit card debt. More than two-thirds (68 percent) of Americans believe that loans and credit card debt expanded their opportunities. And 85 percent believe that Americans use debt to live beyond their means.

Academic research shows the conflicting attitude is justified. Some credit card users aggressively pay off debt. Others pay off their bills in full each month.

However, a substantial minority (44 percent)26 of revolvers pay within $50 of their minimum payment. Minimum payers are at a high risk of carrying unsustainable credit card balances with high interest.

In fact, 14 percent of consumers have credit card balances above $10,000.27 At current rates, consumers with balances of $10,000 will spend close to $1,500 per year on interest charges alone.28

Even an average revolver will spend between $65230 and $68331 on credit card interest each year.

Credit Debt Burden by Income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the 2016 Survey of Consumer Finances, the top 10 percent of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $2,100. However, their debt-to-income ratio was 13.9 percent. On the high end, earners in the top decile had an average of $12,500 in credit card debt. But debt-to-income ratio was just 4.8 percent.

Income Percentile

Median Income

Average CC Debt

CC Debt: Income Ratio

0%-20%

$15,100

$2,100

13.9%

20%-40%

$31,400

$3,800

12.1%

40%-60%

$52,700

$4,400

8.3%

60%-80%

$86,100

$6,800

7.9%

80%-90%

$136,000

$8,700

6.4%

90%-100%

$260,200

$12,500

4.8%

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes.33 If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational Differences in Credit Card Use

In 2017, Generation X surpassed the baby boomer generation to have the highest credit card balances. Experian estimates that on average, Generation X has a balance of $7,750 per person, 21.94% more than the national average ($6,354). Boomers carry nearly as much as Generation X with an average balance of $7,550.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders and are too quick to take on debt, have nearly the lowest credit card balances. Their median balance clocks in at $4,315. The youngest generation, Gen Z, has the smallest average balance of $2,047 per person.34

Better Consumer Behavior Driving Bank Profitability

You may think that lower balances spell bad news for banks, but that isn’t the case. Credit card lending is more profitable than ever thanks to steadily declining credit card delinquency. Credit card delinquency is near an all-time low 7.47 percent.13

Despite better borrowing behavior, banks held interest on credit cards steady between 13% and 14%35 since 2010. Today, interest rates on credit accounts (assessed interest) is nearly 15%. This means bank profits on credit cards are at all-time highs. In 2015, banks earned over $102 billion dollars from credit card interest and fees.36 This is 15 percent more than banks earned in 2010.

How Does Your State Compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency. You can even see how each generation in your state compares with the national median.

State

Credit Card Debt Per Debtor

Credit Card Debt Per House

Alabama

$3,710.56

$7,198.48

Alaska

$5,879.85

$11,406.91

Arizona

$4,299.70

$8,341.42

Arkansas

$3,289.01

$6,380.69

California

$4,569.51

$8,864.85

Colorado

$4,898.56

$9,503.20

Connecticut

$5,171.89

$10,033.47

Delaware

$4,338.88

$8,417.42

Florida

$4,318.35

$8,377.59

Georgia

$4,727.46

$9,171.27

Hawaii

$5,330.46

$10,341.09

Idaho

$3,791.84

$7,356.18

Illinois

$4,412.71

$8,560.65

Indiana

$3,624.05

$7,030.65

Iowa

$3,169.16

$6,148.17

Kansas

$3,854.05

$7,476.85

Kentucky

$3,457.67

$6,707.88

Louisiana

$3,767.91

$7,309.75

Maine

$3,905.56

$7,576.78

Maryland

$5,287.61

$10,257.96

Massachusetts

$4,720.53

$9,157.83

Michigan

$3,458.51

$6,709.51

Minnesota

$4,257.26

$8,259.08

Mississippi

$3,204.95

$6,217.60

Missouri

$3,763.46

$7,301.11

Montana

$3,732.83

$7,241.69

Nebraska

$3,594.46

$6,973.25

Nevada

$4,263.19

$8,270.59

New Hampshire

$4,943.44

$9,590.27

New Jersey

$5,361.06

$10,400.47

New Mexico

$4,185.93

$8,120.71

New York

$4,969.84

$9,641.50

North Carolina

$4,124.04

$8,000.63

North Dakota

$3,756.19

$7,287.00

Ohio

$3,738.95

$7,253.56

Oklahoma

$4,038.90

$7,835.47

Oregon

$3,881.17

$7,529.48

Pennsylvania

$4,209.21

$8,165.86

Rhode Island

$4,376.34

$8,490.10

South Carolina

$4,187.65

$8,124.04

South Dakota

$3,608.28

$7,000.07

Tennessee

$3,903.24

$7,572.28

Texas

$4,937.00

$9,577.78

Utah

$3,775.21

$7,323.92

Vermont

$4,199.77

$8,147.56

Virginia

$5,404.32

$10,484.38

Washington

$4,568.09

$8,862.09

West Virginia

$3,381.36

$6,559.84

Wisconsin

$3,410.29

$6,615.96

Wyoming

$3,944.72

$7,652.76

State

Delinquency Rate

Alaska

11.3%

Alabama

8.5%

Arkansas

9.1%

Arizona

10%

California

8.1%

Colorado

6.9%

Connecticut

7.3%

Delaware

10.4%

Florida

10.8%

Georgia

10.8%

Hawaii

6.5%

Iowa

6.7%

Idaho

6.9%

Illinois

7.3%

Indiana

6%

Kansas

6.5%

Kentucky

8.7%

Louisiana

10.2%

Massachusetts

6.9%

Maryland

8.5%

Maine

7%

Michigan

7.2%

Minnesota

5.3%

Missouri

12%

Mississippi

7.9%

Montana

6%

North Carolina

7.36%

North Dakota

4.22%

Nebraska

4.82%

New Hampshire

6.07%

New Jersey

7.20%

New Mexico

8.32%

Nevada

9.88%

New York

8.22%

Ohio

6.81%

Oklahoma

7.22%

Oregon

6.08%

Pennsylvania

7.05%

Rhode Island

7.06%

South Carolina

7.65%

South Dakota

5.73%

Tennessee

6.67%

Texas

7.84%

Utah

5.56%

Virginia

5.87%

Vermont

5.46%

Washington

5.36%

Wisconsin

4.47%

West Virginia

7.34%

Wyoming

6.49%

State

Silent

Boomers

Gen X

Millennials

Gen Z

Alaska

$5,456

$9,495

$8,995

$4,464


$1,518


Alabama

$3,511

$6,461

$6,485


$3,324


$1,455




Arkansas

$3,194

$5,995

$6,197


$3,240


$1,803


Arizona

$4,149

$6,967

$6,778


$3,575


$1,555


California

$4,232

$7,050

$6,578


$3,654


$1,596


Colorado

$4,004

$7,499

$7,439


$3,833



$1,514


Connecticut

$4,091

$8,179

$8,046


$3,716



$2,567


Dist. of Columbia

$5,486

$7,976

$7,393


$4,596



$2,814


Delaware

$4,147

$7,128

$7,144


$3,285



$1,608


Florida

$4,311

$7,047

$6,615


$3,639



$1,837


Georgia

$4,356

$7,517

$6,972


$3,540


$1,835


Hawaii

$4,386

$7,073

$7,355


$4,203


$1,657


Iowa

$2,367

$5,297

$6,163


$2,857


$935


Idaho

$3,477

$6,147

$6,332


$3,193


$928


Illinois

$3,641

$7,054

$7,040


$3,537


$1,556


Indiana

$3,137

$5,998

$6,174


$3,003


$1,402


Kansas

$3,187

$6,514

$6,930


$3,292


$1,421


Kentucky

$3,044

$5,727

$6,080


$3,082


$1,372


Louisiana

$3,679

$6,598

$6,561


$3,425


$1,971


Massachusetts

$3,481

$7,017

$7,022


$3,479

$1,882


Maryland

$4,341

$7,994

$7,458


$3,671


$1,749


Maine

$3,107

$6,054

$6,531


$3,375


$1,286


Michigan

$3,436

$6,049

$6,113


$2,971


$1,523


Minnesota

$3,025

$6,299

$6,898


$3,244


$1,338


Missouri

$3,265

$6,333

$6,757


$3,279


$1,346


Mississippi

$3,218

$5,634

$5,718


$3,043


$2,011


Montana

$3,285

$5,977

$6,868


$3,385


$1,506


North Carolina

$3,481

$6,566

$6,710


$3,397


$1,486


North Dakota

$2,141

$5,362

$6,646


$3,326


$1,467


Nebraska

$2,717

$5,909

$6,498


$3,136


$1,388


New Hampshire

$3,582

$7,140

$7,443


$3,519


$1,666


New Jersey

$4,126

$8,011

$7,882


$3,928


$2,241


New Mexico

$4,373

$6,906

$6,534


$3,532


$1,207


Nevada

$4,733

$6,993

$6,357


$3,700


$1,185


New York

$3,906

$7,127

$7,234


$3,986


$2,495


Ohio

$3,313

$6,383

$6,530


$3,135


$1,465


Oklahoma

$3,484

$6,789

$6,900


$3,493


$1,641


Oregon

$3,618

$6,502

$6,481


$3,245


$856


Pennsylvania

$3,282

$6,550

$7,059

$3,457


$1,545


Rhode Island

$3,524

$7,162

$7,313


$3,371


$1,786


South Carolina

$4,019

$6,537

$6,559


$3,281

$1,375


South Dakota

$2,584

$5,710

$6,900

$3,250


$1,531


Tennessee

$3,388

$6,309

$6,505


$3,308


$1,737


Texas

$4,350

$7,591

$7,119


$3,779


$1,945


Utah

$3,364

$6,411

$6,713


$3,070


$932


Virginia

$4,132

$7,956

$7,968


$3,985

$1,692


Vermont

$3,681

$6,197

$6,547


$3,297


$2,511


Washington

$3,947

$7,365

$7,190


$3,500


$1,355


Wisconsin

$2,740

$5,673

$6,289


$2,914


$992


West Virginia

$2,914

$5,573

$6,158


$3,238


$1,166


Wyoming

$3,523

$6,356

$6,889

$3,663

$1,442

Footnotes:

    1. Calculated metric using the following sources:
      1. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % with Credit Card Debt, Accessed on January 28, 2018
      2. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3 and Page 20, calculated metric, Accessed on January 28, 2018

Notes: 74.6% carry a credit card balancea X 268b million adults with credit reports in Q3 2017 = 199 million credit card users.

  1. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 4, Q3 2017, Accessed on January 28, 2018465 million credit card accounts. 465 million credit card accounts / 199 million credit card users1 = 2.3 credit cards per person.
  2. Calculated metric using the following sources:
    1. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018
    2. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 50, Table 1 Summary Statistics, Accessed on January 28, 2018

    Notes: 199 million1 * 55% a (Carried debt at some point last year) = 110 million people with credit card debt.

    199 million1 * 67% (Not full payers) b = 134 million people with credit card debt.

    Average estimate is 122 million with credit card debt.

  3. Calculated Metric using the following sources:
    1. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018
    2. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 50, Table 1 Summary Statistics, Accessed on January 28, 2018

    Notes: 199 million1 * 55% (Carried debt at some point last year) * $4,5555e in debt per person = $501 billion in debt

    194 million1 * 67% (Carried debt at some point last year) * $4,3505d in debt per person = $583 billion in debt

    Average estimated total credit card debt is $550 billion.

  4. Calculated metric using the following sources:
    1. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3, Debt Balance Credit Card Debt Q3 2017, Accessed on January 28, 2018
    2. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table A-1 Summary Statistics by Payer Type, Accessed on January 28, 2018
    3. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018

    Notes:

    5d- estimate of average credit card debt using Minimum Payments and Debt Paydown in Consumer Credit Cards
    $808 billion in outstanding credit card balancesa
    Estimate that 33% pay balance in full each monthb
    Full payers carry an average balance of $3412 before paying it offb

    [$808 billion - ($3,412 (full payer balance) * 33% full payer * 199 million credit card users1)] / (199 million credit card users * (100% - 33% not full payers)) = $4,350

    5e- estimate of average credit card debt using 2016 Report on the Economic Well-Being of U.S. Households

    $808 billion in outstanding credit card balancesa
    Estimate that 45% pay balance in full each monthc
    Full payers carry an average balance of $3412 before paying it offb

    [$808 billion - ($3,412 (full payer balance) * 45% full payer * 199 million credit card users1)] / (199 million credit card users * (100% - 45% not full payers)) = $4,555

    Average estimated credit card debt per person is $4,453.

  5. Calculated metric using the following sources:Current Population Survey, U.S. Census Bureau, Table HH6 Average Population Per Household and Family: 1940 to Present, Accessed January 28, 2018Average per person credit card is $4,4535 and the average household contains 1.95 adults over the age of 18. $4,453 * 1.95 = $8,683.
  6. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3, Debt Balance Credit Card Debt Q3 2017 and Q3 2016, Accessed on January 28, 2018
  7. Calculated metric using the following sources:November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3, Debt Balance Credit Card Debt Q3 2017, Accessed on January 28, 2018Notes: $808 billion / 199 million1 = $4,041.
  8. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018
  9. Calculated metrics using the following sources:
    1. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % with Credit Card Debt September 2008, Accessed on January 28, 2018
    2. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 20 and Page 3, Calculated metric, number of people with credit reports Q3 2008 Accessed on January 28, 2018
    3. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3, Outstanding credit card balances Q3 2008, Accessed on January 28, 2018
    4. Survey of Income and Program Participation, 2008 Panel, Wave 4, US Census Bureau, Debt by Year, Table 2. Percent Holding Debt for Households, by Type of Debt and Selected Characteristics: 2009, Credit card debt, Accessed on January 28, 2018
    5. Current Population Survey, U.S. Census Bureau, Table HH6 Average Population Per Household and Family: 1940 to Present, Average number of adults per family, 2008, Accessed January 28, 2018
    6. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table A-1 Summary Statistics by Payer Type, Accessed on January 28, 2018

    Estimate G:

    76.6% of people with credit reports had balances on credit cards in September 2008a x 240 million adults with credit reports in Q3 2008b= 183 million credit card users.

    $866 billion in outstanding credit card debt in Q3 2008c
    Average balance of $3,412 for “full payers.”f
    33% full payersf

    [$866 billionc - ($3,412f (full payer balance) * 33% full payerf * 183a/b million credit card users)] / (183a/b million credit card users * (100% - 33%f not full payers)) = $5,365

    Estimate H:

    76.6% of people with credit reports had balances on credit cards in September 2008a x 240 million adults with credit reports in Q3 2008b= 183 million credit card users.

    $866 billion in outstanding credit card debt in Q3 2008c
    Average balance of $3,412 for “full payers.”d
    44.5% in debtd

    [$866 billion - ($3,412 (full payer balance) * (100% - 44.5% (estimate of full payer)) * 240 million people with credit reports)] / (240 million people with credit reports * (44.5% in debt)) = $6,352

    Estimate I:

    Average estimated credit card debt per person is $5,858.

    Estimate J:

    Average per person credit card is $5,85810I X 1.92 adults per housee = $11,248.

  10. Calculated metric using:
    1. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, Accessed January 28, 2018.
    2. Average household credit card debt Metric 6

    Credit card debt to income ratio = 8,0683b/59,039a=14.7%

  11. Calculated metric using:
    1. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, Accessed January 28, 2018.
    2. Average household credit card debt Metric 12J

    Credit card debt to income ratio = 11,248b/56,076a=20.1%

  12. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 12, % of Total Balance 90+ Days Delinquent, Credit Cards, Accessed on January 28, 2018
  13. 2016 Survey of Consumer Finances, Board of Governors of the Federal Reserve System, Table 13 16 Means Credit Card Debt, Accessed on January 28, 2018
  14. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Full payers will pay off the entirety of their statement balance each month. Finding an estimate of full payers’ statement balances was not an easy task. The Federal Reserve Bank of New York does not provide estimates of full payers compared to people who carry a balance.In order to get our estimates, we turned to academic research outside of the Federal Reserve Banks. In the paper, Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we found robust estimates of the statement balances of “full payers.” According to their analysis (see Table 1-A), full payers had mean statement balances of $3,412 (when summarized across all credit cards) before they went on to pay off the debt.We multiplied $3,412 by the estimated number of full payers to get the estimated balances of full payers.
  15. Calculated Metric using the following sources:
    1. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % with Credit Card Debt September 2008, Accessed on January 28, 2018
    2. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 20 and Page 3, Calculated metric, number of people with credit reports Q3 2008 Accessed on January 28, 2018
    3. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 3, Outstanding credit card balances Q3 2008, Accessed on January 28, 2018
    4. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table A-1 Summary Statistics by Payer Type, Accessed on January 28, 2018
    5. Survey of Income and Program Participation, 2008 Panel, Wave 4, US Census Bureau, Debt by Year, Table 2. Percent Holding Debt for Households, by Type of Debt and Selected Characteristics: 2009, Credit card debt, Accessed on January 28, 2018

    Estimate G:
    76.6% of people with credit reports had balances on credit cards in September 2008a x 240 million adults with credit reports in Q3 2008b= 183 million credit card users.

    $866 billion in outstanding credit card debt in Q3 2008c
    Average balance of $3,412 for “full payers.”d
    33% full payers, we calculated

    $866 billionc - ($3,412d (full payer balance) * 33% full payerd * 183 million credit card usersa/b) = $659 billion

    Estimate H:
    76.6% of people with credit reports had balances on credit cards in September 2008a x 240 million adults with credit reports in Q3 2008b= 183 million credit card users.

    $866 billion in outstanding credit card debt in Q3 2008c
    Average balance of $3,412 for “full payers.”d
    44.5% full payerse

    $866 billionc - ($3,412d (full payer balance) * 44.5% full payere * 183 million credit card usersa/b) = $518 billion

    Estimate I:
    Average estimated credit card debt is $589 billion.

  16. Calculated metric using the following sources:
    1. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % with Credit Card Debt September 2008, Accessed on January 28, 2018
    2. November 2017 Report on Household Debt and Credit, Federal Reserve Bank of New York, Page 20 and Page 3, Calculated metric, number of people with credit reports Q3 2008 Accessed on January 28, 2018
    3. Survey of Income and Program Participation, 2008 Panel, Wave 4, US Census Bureau, Debt by Year, Table 2. Percent Holding Debt for Households, by Type of Debt and Selected Characteristics: 2009, Credit card debt, Accessed on January 28, 2018
    4. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table A-1 Summary Statistics by Payer Type, Accessed on January 28, 2018

    Notes:

    76.6 percent of the adult population uses credit cardsa X 240 million adults with credit reportsb = 183 million credit card users X 44.5% with debtc = 82 million with credit card debt

    76.6% of the adult population uses credit cardsa X 240 million adults with credit reportsb = 183 million credit card users X 67% with debtd = 123 million with credit card debt

    Average estimate is 102 million with credit card debt

  17. Calculated metrics using the following sources:
    1. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018
    2. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table A-1 Summary Statistics by Payer Type, Accessed on January 28, 2018

    Notes:
    56% carrying debta x 199 million credit card users1 = 110 million in debt
    67% carrying debtb x 199 million credit card users1 = 134 million in debt

  18. Calculated metric using the following sources:
    1. Current Population Survey, U.S. Census Bureau, Table HH6 Average Population Per Household and Family: 1940 to Present, Average number of adults per family, 2008, Accessed January 28, 2018
    2. 2016 Survey of Consumer Finances, Board of Governors of the Federal Reserve System, Table 13 16, Credit Card Debt, Accessed on January 28, 2018

    43.9% of U.S. households carry credit card debtb x 126.24 million U.S. householdsa = 55.4 million households

  19. Calculated metric using the following sources:
    1. Current Population Survey, U.S. Census Bureau, Table HH6 Average Population Per Household and Family: 1940 to Present, Average number of adults per family, 2008, Accessed January 28, 2018
    2. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018

    55% of U.S. households carry credit card debtb x 126.24 million U.S. householdsa = 69.4 million households

  20. 2016 Survey of Consumer Finances, Board of Governors of the Federal Reserve System, Table 13 16, Credit Card Debt, Accessed on January 28, 2018
  21. Do we know what we owe? Consumer debt as reported by borrowers and lenders, Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw, Federal Bank of New York Economic Policy Review, Page 27, Table 2 SCF and CCP Househohold debt by account type, Accessed on January 28, 2018
  22. 2016 Survey of Consumer Finances, Board of Governors of the Federal Reserve System, Table 13 16 Means, Credit Card Debt, Accessed on January 28, 2018
  23. Do we know what we owe? Consumer debt as reported by borrowers and lenders, Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw, Federal Bank of New York Economic Policy Review, Page 27, Table 2 SCF and CCP Househohold debt by account type, Accessed on January 28, 2018
  24. The Complex Story of American Debt, Pew Charitable Trusts, Page 9, Accessed on January 28, 2018
  25. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table 1 Summary Statistics by Payer Type, Accessed on January 28, 2018
  26. Recent Developments in Consumer Credit Card Borrowing, Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, Accessed on January 28, 2018
  27. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, January 24, 2017.November 2017 interest rate on accounts assessed interest 14.99%: $10,000 * 14.99% = $1,499.
  28. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table 1 Summary Statistics by Payer Type, Accessed on January 28, 2018
  29. $4,3505D * 14.99%28 = $652
  30. $4,5555E * 14.99%28 = $683
  31. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table 1 Summary Statistics by Payer Type, Accessed on January 28, 2018
  32. 2017 State of Credit Report”, Experian, Accessed January 28, 2018
  33. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, Accessed January 28, 2018
  34. U.S. Bureau of the Census, Sources of Revenue: Credit Card Income from Consumers for Credit Intermediation and Related Activities, All Establishments, Employer Firms [REVCICEF522ALLEST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/REVCICEF522ALLEST, September 7, 2017.
  35. Calculated Metric using the following sources:
    1. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, population, Accessed January 28, 2018
    2. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, Credit card balance per capita, Accessed January 28, 2018
    3. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % with credit card debt, Accessed on January 28, 2018
    4. Minimum Payments and Debt Paydown in Consumer Credit Cards, Benjamin J. Keys and Jialan Wang, Page 59, Table 1 Summary Statistics by Payer Type, Accessed on January 28, 2018
    5. 2016 Report on the Economic Well-Being of U.S. Households, Board of Governors of the Federal Reserve System, Page 35, Accessed on January 28, 2018

    Notes:
    Total credit card balance of state= Per capita credit card balancesb x State populationa
    Number of credit credit card users= Populationa x % carrying credit card balancesc
    Balance of transactors= $3,412d X 45%e X Populationa x % carrying credit card balancesc
    Population carrying credit card debt= 55%e X Populationa

    Average credit card balance = (Total Credit Card Balance of state - Balance of Population Not Carrying Debt) / Population Carrying Credit Card Debt

  36. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, % With Severely Delinquent Credit Card Debt, Accessed on January 28, 2018
  37. Federal Reserve Bank of New York/Equifax Consumer Credit Panel, tabulated by the Federal Reserve Banks of Philadelphia and Minneapolis and accessed via the Consumer Credit Explorer, Credit Card balance by age, Accessed on January 28, 2018

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Featured

Use the $20 Rule to Break Your Credit Card Addiction

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

 

Credit Cards

If you’re trying to break your credit card addiction, try this simple rule of thumb: Anytime your purchase is less than $20, pay cash, not credit.

This simple technique helped save more than 6,000 people over $100 on their credit card bills, according to a joint study by the Urban Institute, Arizona Federal Credit Union and the Doorways to Dreams Fund, a nonprofit financial services organization.

Carrying credit card debt can be one of the most harmful financial habits out there, yet 41.7 percent of Americans carry balances from month to month, according to the American Bankers Association. When you carry a balance from month to month, not only are you stuck paying additional interest charges but it can also be harmful to your credit score.

These groups sought to figure out if people were less likely to carry a balance if they tried one of two strategies: Either they were reminded not to use credit for any purchases under $20, or they received alerts warning them that carrying a balance can add an additional 20% to their purchases with interest.

For the study participants, the researchers chose over 14,000 consumers who carried a balance for at least two months within a six month period. Then they split them into three test groups: one group used the $20 rule; one group received the warnings about accruing interest on debt; and the last group did nothing differently.

The second strategy (warnings about revolving debt consequences) wasn't as successful, creating no significant changes in spending behavior.

But the first strategy — the $20 rule — made a real impact.

Over 6,100 people used the $20 rule for six months. Over that time, they reduced their balance by an average of $104.20.

The trick to why the $20 rule worked is that it helped people change their spending behavior, said study author Brett Theodos, a lead researcher at Urban Institute. The point of the rule, he added, was to reduce frivolous spending among consumers, rather than focusing on encouraging them to make monthly payments.

It’s those spending patterns — using credit for everything from a pack of gum to a flight to L.A. — that result in high revolving credit balances over time.

“The [$20 rule] was more actionable. It was a very clear target,”  Theodos said.

Both rules worked better with consumers under age 40 and for consumers who used their credit card most often (10 or more times a month). Theodos said it’s possible that the groups were “more tech-engaged and took more advantage of the emails and web banners in particular.”

The under-40 consumers who tried the $20 rule reduced their revolving debt by $173 on average over six months. Overall, they reduced their debt by up to 5%, according to the study. When using the second strategy (those frequent alerts and notifications) they shaved $160 off their average revolving debt. Study participants in the 40 to 60 age range didn’t see a significant change in balance reduction, however those over 60 did cut back debt by roughly 3 percent.

The key takeaway: Using action-oriented strategies may be a smart way to work your way out of credit debt. It’s certainly worked successfully for savings. For example, the $5 savings method involves on a similar strategy. The idea is to begin saving every $5 bill that you receive. It helped one woman save thousands of dollars over several years.

“Rules, tips reminders, nudges, are really the wave of the future,” Theodos said.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
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Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Consumer Watchdog, Pay Down My Debt

When and How to Settle Credit Card Debt

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Very Upset Woman Holding Her Many Credit Cards.

Are you drowning in a sea of credit card debt, have collection agencies hounding you, and have no idea what to do because you can’t pay your balance?

There’s a light at the end of the tunnel you’re in, and it’s not declaring bankruptcy. You can settle your credit card debt for much less than what you owe, but it will involve some negotiating and standing your ground.

The advice contained here is for those with credit card debt that is already in collections. In this situation, you’re no longer dealing with your original creditor because they’ve sold your debt off to a collection agency.

This usually happens once you’re 150 days past due on a payment. At this point, you should have received a letter from the collection agency with the details of the debt it’s trying to collect on, or a phone call explaining the situation. If you haven’t received written notice, request it so you’re crystal clear on what the collection agency is asking you for.

Read on to find out how you can handle settling your credit card debt without having to pay more than you can afford.

Figuring Out How Much You Can Pay

You might not want to hear this, but collection agencies aren’t going to stop calling unless you pay something. It doesn’t have to be (and won’t be) for the full amount you owe, but considering the collection agency purchased your debt, it wants to make a profit.

The first step in creating a plan to settle credit card debt is to figure out how much you can afford to pay. If you can’t pay much, save what you can as every bit helps.

Set aside time to review your spending. If you already have a budget, look to see where you can cut expenses to put more money toward savings. Is it possible to earn extra money outside of your day job, or work overtime for the next few months?

Be realistic. If you can only save $150 per month right now, that’s all you can afford to save. You don’t want to make payment promises to a debt collector that you can’t keep. Save as much as you possibly can every month until you have enough to make an offer to the collection agency. We recommend having at least 20% of the balance you owe saved up before doing this. For example, if you owe $10,000, then save up $2,000.

You should also know that collection agencies can come after you if you don’t pay. If you earn a decent income or have significant savings, you’ll want to protect yourself. They can garnish your wages, seize your assets, and in some cases, can go after your retirement accounts. Nolo has more details here, but if your retirement plan is set up under the Employee Retirement Income Security Act (ERISA), then it should be safe.

Making the Offer to the Collection Agency

Here comes the hard part. If you’ve been on the phone with the collection agency previously, they probably told you that you had to pay the full amount of the balance you owe. It’s their job to scare you into thinking this is your only option.

If you haven’t made contact yet, be ready. The important thing is hold your ground. Say you can’t afford to pay the balance in full. The collector will likely come down, asking if you can pay around 80% of the balance you owe.

Your job is to hold steady until you can meet in the middle, at the amount you have saved up. If they ask you what you can pay, don’t name the actual amount you’ve determined you can pay. Go lower. Chances are you’ll have to negotiate up to that amount. You don’t want to settle on an agreement for more money than you have.

You’ll typically have an easier time negotiating if you can pay the balance all at once, but if you can only offer to make monthly payments right now, see if the collector will agree.

If they aren’t willing to accept what you have to offer the first time around, don’t get discouraged. Continue saving what you can, and when they call you back (or you call them), tell them how much more you can pay. Consider asking the person you’re dealing with how long they’ve had your account for – the closer the date, the more flexible they might be. They don’t want to lose your account if you’re willing to pay.

Additionally, don’t let them pressure you into making an upfront payment. It could lessen your negotiating power. You shouldn’t be giving the collection agency a cent until you settle on an agreement and get the agreement in writing.

Do you need help knowing how to word your response to debt collectors? If you think they’re in the wrong (and you don’t owe the debt), or if you want them to contact you in a certain way, the Consumer Finance Protection Bureau offers sample contact letters here.

Get the Offer in Writing

Hopefully you’re able to reach a settlement for the amount you have saved. Once you reach that settlement, you must get it in writing. A verbal agreement means nothing if the collector ever decides to sue you. You need proof, especially if it’s requested by the credit bureaus.

Any time you speak with a collector you should be keeping strict records of everything that was said. You want to be able to document all communication you had with them. It’s not their responsibility to do this. The only thing they care about is getting your money. If it’s legal to record phone calls in your state, you can do that, too.

Once you settle on an agreement, ask the collector if they can provide you with an agreement letter. If they aren’t willing to do that, you should draft your own. There are many helpful examples if you search for them, but this is a good template to follow. In general, you want to make sure the following details are contained in this letter:

  • The date the agreement is valid until (many offers expire after 30 days – you want to make sure you pay before then)
  • The amount you must pay
  • The correct agency name, especially if your debt has been sold multiple times
  • The exact debt(s) your money is going toward (be as specific as possible; include account numbers, dates, and name institutions)
  • Instructions for the agency – if it accepts the payment, that means the balance is paid in full and it can’t contact you about it again or place it on your credit report again
  • Credit history reporting – depending on what the collector agreed upon, this could be deletion of the mark from your credit history (pay for delete) or “paid in full” status

How to Pay

You might think the best way to pay is to fork over the cash, or write a personal check. We wouldn’t recommend either of those options. Cash isn’t traceable, and personal checks give the collection agency your bank and routing number.

Instead, pay by cashier’s check or money order. Keep in mind paying with a money order may make it difficult to prove that you paid.

If it’s not too much of a hassle (and you don’t trust the collection agency), you can open a “throw-away” account that won’t charge overdraft fees like Bluebird and use a check from that account. Close it once the payment goes through. This gives you peace of mind knowing your regular accounts are safe.

When sending the payment, send it via certified mail return receipt requested.

Is Your Debt Expired?

Before you even contact the collection agency, you’ll want to check if your credit card debt is within the statute of limitations for your state. If you make any sort of payment toward an old debt, or acknowledge that you owe it, then that debt becomes active again and you open yourself up to the possibility of a lawsuit.

The statute of limitations on consumer debt varies from state to state and it may be a good idea to speak with an attorney if you can afford to.

Beware of Possible Tax and Credit Implications

When you settle credit card debt for an amount less than what was originally owed, you may have to pay income tax on the difference. This is because the IRS treats the amount that was forgiven as gained income.

It’s best to consult a tax professional and let them know about your situation. According to Nolo, if the amount forgiven was over $600, the debt collector is required to report it to the IRS and send you Form 1099-C so you can report the income. If you don’t receive this form from the collector, that doesn’t excuse you from reporting it. However, there are exceptions, which is why you should let a tax professional help you figure out if you need to take action.

Another factor to consider in the aftermath of your credit card debt being settled is your credit score and history. How will they be affected? Paying a portion back is better than ignoring your debts, but your credit score may still suffer. As we mentioned, you should include specific instructions for your debt collector to list the debt as “paid in full” on your credit report – you don’t want it to say “settled” as that looks worse.

In some cases, the debt collector may not have the authority to make changes to your credit report, especially if you want the account deleted. You may have to contact the original creditor. You can ask the debt collector for that information, and then ask the original creditor if they’ll consider deleting the account from your report. Make sure you have a good explanation – tell them you’re trying to get your finances in order by repaying old debt, and want to start fresh.

Getting Help With Your Debt

Be very wary of accepting help from a debt settlement company. Many are for-profit and unethical, taking fees out of your payments and negotiating with collectors when you can do the same for free. It will likely end up costing you more money to have their assistance.

If you’re having trouble managing any other debt you have, a consumer credit counseling company could be the right move for you. We have a list of the best we recommend that won’t charge you an arm and a leg for their services. They can help you create a budget and a debt repayment plan, as well as advise you on how to improve your credit score.

Alternatively, you can check out our free guide to getting out of debt. We know dealing with collection agencies and old debt isn’t fun, but you’ll feel relieved once this process is over with. The worst thing you can do is completely ignore your debts as the bad marks on your credit won’t fall off your history for another seven years. Most people can’t wait that time out. Good credit is valuable to have, and there’s no better time to start working toward it than right now.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Balance Transfer, Pay Down My Debt

How to Use a Balance Transfer to Attack Your Debt

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Screen Shot 2015-02-03 at 1.30.44 PM

Below is an excerpt from our Debt Free Forever Guide. Be sure to download the free guide to help dump debt for good.

Using a balance transfer to attack can help slash your interest rates and save you time and money. You are eligible for a balance transfer if:

  • You have good credit. Your score is likely above 700.
  • You are not behind on any of your payments.
  • You have a debt burden well below 50%.
  • Your debt is well below 50% of your annual income

In this post, we’ll walk you through deciding if a balance transfer is right for you and how to pick one.

Make a List of Your Debt, from Highest to Lowest Interest Rate

In this exercise, you will need to make an inventory of your credit card debt. Your most recent billing statement will have all of the information required. On the list, you will need to include:

  • Your total statement balance. If you only made purchases on your credit card, you only need to include the statement balance. However, if you have taken out a cash advance or have a promotional (for example 0%) balance on the card, you should list each balance separately. The balance by each category is usually listed towards the end of the statement, under a section call “interest charges.” In the example below, you can see that each balance is listed separately:

BT image - interest

  • Your Annual Percentage Rate (APR): As you can see in the example above, there are very different interest rates depending upon whether you have a cash advance or a purchase. You will want to list each balance separately, with each APR listed separately.
  • The issuing bank: You will need to determine which bank issued your credit card. For most credit cards, it is obvious. However, for some store credit cards it is not always clear. Your statement will almost always identify the “issuing bank.” If you cannot determine which bank issued your credit card, just call customer service and ask them. Once you have all of this information gathered, you can complete the list of your balances, from highest to lowest interest rates. Below is an example:

BT example

 

As you can see in the example below, this individual has $10,000 of credit card debt. The interest rates range from 29% (the cash advance on Citi) to 0% (a promotional purchase offer from Chase).

The 16.65% is the blended interest rate, which we calculated. That means that the individual is paying an average of about 17% across all of the debt.

Use MagnifyMoney to find a balance transfer offer

Now that you have an inventory of your total debt, you can come up with a strategy for transferring that debt to a lower interest rate. Here at MagnifyMoney, we review thousands of offers, and update the best deals every day. You can visit

MagnifyMoney’s balance transfer table to find the best deals.

When you look to find a balance transfer, just remember:

  • If you have a balance at 0%, you should not transfer that balance until the end of the promotional period. If it is at 0%, keep it there.
  • You can only transfer debt to a different bank. So, you could never transfer Citibank debt to another Citibank credit card. In the example we had above, $2,000 of the $10,500 is already at 0%. So, we are looking to transfer $8,500 of debt to a lower interest rate. In order to use the balance transfer tool, you need to know how much you can actually afford to pay each month towards that debt. Let’s say that you can afford to pay $300 per month towards the $8,500 of debt. In summary, you are looking to transfer $8,500 of debt, at an average interest rate of 20% (remember, we excluded the debt you already have at 0%), and you can afford to pay $300 per month. We have input this information into the balance transfer tool, and here are the results:

 

The results show a number of excellent options, which can help save you a lot of money. (We are only displaying the first 3 results – there are many more).

Here is how we present the results:

  • Savings: we rank the results based upon savings. The transfer deal that offers the most savings is at the top. This will tell you how much less interest you will pay during the balance transfer period, compared to your current situation.
  • Transparency Score: the more fine print a credit card has, the higher the chance that you can end up paying hidden fees or charges. We look at all the fine print, and grade cards based upon their simplicity. The best cards get an A, the worst cards get an F.
  • Offer Terms: we then show you the key features of the offer, which includes the balance transfer fee and the promotional interest rate (including how many months the promotional offer would last). The top 3 results are all from credit unions (FCU = Federal Credit Union). That means you would have to join the credit union, and then apply for the credit card. The fourth result, from Santander, does not require you to join a credit union. When you make a decision about which credit union or bank to select, you should consider:

Is the savings the most important element to you? If you are looking to save the most amount of money, regardless of any other element, than you would probably want to choose the first result.

  • Do you want to support local credit unions? The downside of a credit union is that you have to join first, and then apply for the credit card. This can take extra time. Some credit unions make it very easy, but others make it a bit more of a challenge. Do you only want to reward cards that have an A transparency score? At MagnifyMoney, our goal is to reward simpler, more transparent cards with fewer hidden fees. We hope that our transparency score becomes a part of your decision-making process.

Regardless of which card you choose, you will end up saving a lot of money. You can see that the Top 3 cards have savings ranging from $2,156 to $2,384. So – you know that you will be better off after a balance transfer.

What you need to understand about a balance transfer

  • Life of Balance deals: if you see an offer that lasts for the “life of the balance” that means the promotional offer expires once you pay off the balance, and not before. Those are great deals.
  • Just because one credit card company rejects you, doesn’t mean that they will all reject you. Every bank and credit union has its own unique underwriting criteria. We wish it was easier, but banks don’t like to share their approval criteria. In our experience, we have seen many people approved by one company but rejected by another – and the reason for the difference is not always clear. You are reading this section because you are likely to be accepted, but you are not guaranteed.
  • Every application will take about 10-20 points off your score. If you are not applying for an auto loan or a mortgage in the next year, you should not be afraid of applying to multiple credit card companies. Just keep applying until you have been able to move the majority of your credit card debt from high interest rates to low interest rates. We have helped a lot of people using balance transfers, and they rarely were able to get all of their debt transferred to one credit card. And many people are approved by one bank but rejected by another.
  • You will not always get the credit limit that you want. Even if you are approved, you may be approved for a credit limit that is much lower than you wanted/expected. That is OK. Remember – even a lower credit limit will still help you save money. If you are given a lower limit than you want, don’t be afraid to call the bank and ask them to reconsider your credit limit. That can often work. But, if it doesn’t, don’t be afraid to apply for a few other cards to transfer the debt.
  •  Fears about your credit score should not keep you from saving money. The purpose of a good credit score is to use it to save money. Remember, applying for new credit is only 10% of your credit score. Much more important is utilization and on-time payment behavior. So long as you keep your old credit cards open after you transfer the balance, you should expect to see an even better score than you have now in 6-12 months, because you will be paying off your debt more quickly and will have a lower credit utilization.

Once you decide which credit card makes the most sense for your needs, you just need to click on “Apply Now.” That will take you to the credit union or bank website, where you can complete the application process. If you ever feel stuck or confused, you can always call the bank directly to complete the application process.

Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.

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Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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