A new study shows that a higher proportion of Americans who pay off their credit card debt month to month for the first time than the portion that pays their bill in full.
J.D. Power found that 51% of Americans can’t pay off their balance in full each month and instead let it roll over to the next month, accruing interest, according to it. Credit Card Annual Satisfaction Survey. The remaining 49% – they are called dealers – can pay their bills in full each month.
This is concerning because from 2018 to 2022, the percentage of those trading balances ranged from 40% to 50%, according to JD Power.
“What we haven’t seen in the past is that there are more guns than dealers,” John Capel, managing director of payments information at JD Power, told Yahoo Finance. “It’s inflation, savings are diminishing, and we’re also seeing interest rates go up, which makes it harder to pay off that balance as it gets bigger.”
Read more: What does the Fed rate hike mean for credit cards?
JD Power surveyed 31,418 credit card customers from August 2022 through June 2023.
The role reversal also comes as credit card interest rates remain near 40-year highs. Americans have also accumulated a record high amount of credit card debt, and delinquency cases are on the rise.
Two separate indicators this month showed that Americans have accumulated $1 trillion in credit card debt — for the first time. Credit card and other revolving account balances totaled $1 trillion in the week of July 26 Federal Reserve Bank of St. Louis While outstanding credit balances reached $1.03 trillion in the second quarter, according to data from Federal Reserve Bank of New York.
Both were heights each.
The average balance on a credit card was $2,573 in June, up 6.5% from a year ago, according to FICO Credit Scoring Company. Even more concerning, the percentage of accounts that are past due in one cycle has increased by 42.6% in the past two years – the highest level since September 2017.
At the same time, the average APR for credit cards is 20.60%, according to Bankthe highest since 1985 when the company first began tracking data.
Kapil said that the option to rotate balances may not be an option at all for many people as inflation over the past year or so has gripped budgets. The survey found that among those rated “financially unhealthy,” 69% rotate their balances from one month to the next. Financial health was measured through the consumer spending/saving ratio, creditworthiness, and safety net elements such as insurance coverage.
Several other experts have also expressed concern that it could mean the end of a student loan hiatus Younger adults will rely more on credit cards.
Read more: Worried about when your student loan repayment will resume? These programs can help
“The pandemic savings are diminishing,” he said. “Consumers use their card for a lot of everyday purchases. Grocery shopping is the type of potential purchase consumers say they make.”
One way consumers can mitigate bloated credit card balances is to look into the installment payment plans offered by some credit card companies. Chase, American Express and Citi, for example, offer the option to convert credit card transactions to a lower interest rate and payment plan after the fact, Cabell said.
But few consumers use them or even know about them. The survey found utilization varies from 9% to 23%, with cardholders who are financially healthy, but overextended cardholders among those who use these plans the most.
“As you see inflation, as you see savings diminish, as you see interest rates go up, those payment plans have to become more focused for people who are looking for a way to not pay double-digit interest rates on what they owe,” Cabell said.
Jana Heron He is the Personal Finance and Real Estate Editor at Yahoo Finance. Follow her on Twitter @tweet.
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