Most Cardholders Are Always Carrying Credit Card Debt

Most Cardholders Are Always Carrying Credit Card Debt

March 3, 2016         Written By Bill Hardekopf

According to a recent report from the Federal Reserve Bank of Boston, most Americans who have a credit card are constantly carrying debt from one month to the next.

The report, entitled “Consumer Revolving Credit and Debt over the Life Cycle and Business Cycle,” analyzed 5% of all U.S. credit report accounts from 2000 to 2014 to determine how Americans’ relationship with credit cards changes over time.

Featured Fair Credit Card

Top Features: All credit types welcome to apply!

They found only 35% of credit cardholders aged 25 to 50 pay off their balances each month. The overwhelming majority, known as “revolvers,” carry a balance every month. Carrying such balances generally results in paying high interest charges.

For most Americans, this borrowing begins between the ages of 20 and 30. During this time, credit card limits increase about 450% and debt rises 300%.

Credit cards can become a substitute for savings for young people.

“People in their 20s don’t seem to save much,” said Scott Fulford, a Boston College professor who wrote the study with Scott Schuh, director of the Boston Fed’s Consumer Payments Research Center. “Well, maybe they’re not saving very much because the way they’re ‘saving’ is just by getting higher credit limits. That provides the funds for emergencies that they need,” Fulford said.

Even as Americans age, they still rely on their credits cards. The average 20-year-old is using more than half of their available credit, and 50-year-olds use about 40%.

Once cardholders do reach the age of 50, credit card borrowing tapers, but 45% of 70-year-olds carry a balance each month. Even the typical 80-year-old carries a $600 balance. The study concludes “the median person is always borrowing, although at the end of life she is not borrowing much.”

The study also showed most Americans are apt to charge more in good economic climates than recessions. The reason is that spending does not seem influenced by the economy. Instead, borrowing seems to be driven by credit limits. When banks offer consumers higher limits, they use it, and banks are always adjusting how much credit they give cardholders. From 2000 to 2008, the average credit card limit rose 40%, then decreased 40% in 2009, the most recent recession.

Revolvers are most affected by credit increases. When these cardholders are offered a 10% credit limit increase, their debt increases by 9.99%. This study indicates most Americans are inclined to use every penny their credit card issuer offers.

The information contained within this article was accurate as of March 3, 2016. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

Review LowCards.com Editor’s Top Cards!

2020 Top Credit Cards by Category
Featured Fair Credit Card
Reflex Mastercard® Credit Card
EDITOR RATING
Featured Fair Credit Card
Reflex Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: All credit types welcome to apply!

Featured Low Interest Card
ABOC Platinum Rewards Mastercard®
EDITOR RATING
Featured Low Interest Card
ABOC Platinum Rewards Mastercard®

Applying for this card will securely direct you to the issuer's website.

Top Features: No annual fee; $150 statement credit after spending $1,200 in first 90 days; 0% on Purchases for 12 months

Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card
EDITOR RATING
Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: Reports to all three credit bureaus, perfect credit not required for approval

Featured Good Credit Card
Petal® Visa® Credit Card
EDITOR RATING
Featured Good Credit Card
Petal® Visa® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: No fees whatsoever. No late fee, international fee, annual fee, or any-other-kind-of-fee, fee


bill-hardekopf

About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.