U.S. Credit Card Debt Hits All-time High
As the banking sector teeters, Americans are struggling with debt. According to the latest report from TransUnion, total credit card debt reached $930.6 billion at the end of last year. That is an 18.5 percent spike from a year earlier, which brings the average credit card balance up to $5,805.
A typical credit card’s annual percentage rate stands at 20 percent and may go higher as the Federal Reserve hikes interest rates. So even though the average American household spends 5.8 percent of its disposable income on debt repayment, that figure is likely to increase. WalletHub estimates that the Fed’s last rate hike will cost borrowers about $3.4 billion in interest payments over the next year.
Breaking point: About 60 percent of Americans live paycheck to paycheck, and WalletHub analyst Jill Gonzalez believes the nation is approaching a breaking point. Using the Great Recession as a guide, Gonzalez says the system will collapse when the household debt reaches a level where people can no longer afford their bills. Since most households have multiple credit cards, the average household’s credit card balance is $9,990 ($2,015 below WalletHub’s projected breaking point for household finances). This means the United States’ next recession could be sparked by Americans racking up debt.
Living standards: The Trumpet’s booklet Solve Your Money Troubles! recommends people avoid credit card debt and save at least 5 percent of their take-home pay for emergencies, in addition to putting money away for special expenses like maternity bills, major furnishings or new shingles. So American households should be living on no more than 90 percent of their take-home income.
As recently as 1950, two fifths of U.S. households did not own an automobile, one third did not own a television, and only a small minority enjoyed luxuries like air conditioning or a water heater. Those households were able to avoid consumer debt and save because they were less entitled than Americans today and did not buy things they could not afford. Psalm 37:21 says, “The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth.” Adjusting your standard of living so you can get out of debt, start saving, and start giving is an imperative.