We’re all tempted to sign up for a credit card, whether it be for large or seemingly menial purchases, debt racks up quickly. In 2023, the overall credit card debt by consumers in the United States alone rose to $1 trillion, the highest recorded amount to date.
How Credit Cards Work
Shockingly, many Americans are still oblivious to the way credit cards actually work. Credit cards are issued by banks for consumers to build a credit score, a score determining the prediction of your credit behavior based on your previous debts and loans. The highest score, an 850, is the best. These cards essentially provide consumers with a small loan, in which they are able to place charges and pay the total amount in installments. Most banks also charge late fees, or APR percentages, which are issued when a payment has not been made on the account.
Why Americans are in so much Debt
Whether it be credit card debt, student loans, or mortgages, Americans often do not realize the amount of debt they are curating. Any small charge, even a dollar, is added to a consumer’s credit history, building on the amount of overall debt owed to banks and corporations. An average person may mortgage their home, as they cannot afford to pay the initial sum. The annual monthly mortgage payment made by Americans is $1,768, which is typically paid for about 30 years. The average student loan payment is $503, typically taking the average consumer 20 years to repay. The average American also pays $403 towards their credit card debt a month. All of this factored together leaves the average American household with $2,674 in debt to be repaid each month, with the national average household income just breaking $97,000. Many households, especially following the Covid-19 pandemic, often miss payments, creating a greater amount to be repaid.
Debt is not Always Bad
Debt isn’t always necessarily a bad thing; repaying debts helps to increase credit scores in the long-run. As previously said, credit scores help to show banks and other financial institutions your credit history and habits. Most mortgage companies, car dealerships, and even schools use this to determine the best route towards your loans, a higher score always being best.
Improving your Credit
If your credit score is already low, it’s never too late to improve it. Typically, the average adult would consider a credit score of a 670 or higher to be a good score. To improve your credit score, consider using your credit card responsibly, meaning making payments as soon as possible. Paying back your debts quickly and efficiently shows financial institutions that you are financially responsible and are capable of paying back your debts in an orderly fashion.
The Verdict
Using credit responsibly is key to every American household. Ruining your credit score will not only affect you financially, but also mentally. Keeping your credit in good standing will not only keep you out of bad debt, but also keep you at peace of mind.
Works Cited
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Schulz, Matt. “2021 Credit Card Debt Statistics.” LendingTree, 13 Oct. 2022, www.lendingtree.com/credit-cards/credit-card-debt-statistics/.
“What Is the Average Mortgage Payment?” Www.quickenloans.com, www.quickenloans.com/learn/average-mortgage-payment#:~:text=Data%20from%20the%20Council%20for. Accessed 7 Aug. 2023.
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