Tim Whistler’s credit card debt gradually grew to about $8,000. The cost of everyday products increased, his monthly rent jumped from $1,000 to $1,400 in four years, and then last year his son was born, adding entirely new categories of spending. Like a growing number of Americans, his credit card debt now exceeds his savings.
“Emotionally, my stress level of seeing my credit score go down, my bills go up and a mountain of debt has definitely affected me,” Whistler, 41, said.
He’s not the only one: More than a third of American households (36%) say they have more debt on credit cards month after month than they have in emergency savings funds, according to a new survey from Bankrate. This is the highest percentage since polling began in 2011.
According to the survey, this would most likely be the case for Gen X and Millennial consumers. Meanwhile, baby boomers were more likely to say their emergency savings outweigh their credit card debt.
“60% of U.S. families living paycheck to paycheck are really feeling it, and necessities rather than discretionary items are increasingly being put on credit cards,” Greg McBride, chief financial analyst at Bankrate, told MarketWatch. As credit card interest rates have risen to 20% or more, the fact that more consumers are using them to finance purchases “is a clear sign of financial stress,” he added.
While the U.S. economy has continued to grow despite pressure on consumers, looking ahead “it may not grow as quickly, or at least not with the help of this huge reserve of household savings” that people had during the pandemic, when the government was providing emergency stimulus and COVID restrictions were limiting people’s opportunities to spend money, said Scott Baker, a finance professor at the Kellogg School of Management. “Many families who had fueled consumer spending are no longer able to do so. I think it’s definitely a negative trend.”
The cost of “getting by” increases faster than income
“Credit card balances are rising, as are delinquencies. This indicates elevated financial stress for consumers,” said Amy Crews Cutts, senior economist at financial services firm Primerica PRI,
Like McBride, she blames “the high cost of just getting by” rather than overspending.
Only 3% of middle-income families (incomes between $30,000 and $130,000) surveyed by Primerica said their incomes have increased faster than the cost of living, despite slowing inflation and rising incomes. The company estimates that over the two and a half years, from May 2021 to October 2023, middle-income families spent an average of $2,445 more than their incomes increased on basic necessities alone (food, gas, public services and healthcare, excluding insurance).
“I’m making more money than I ever have, and [my wife is] achieving his highest hourly wage ever. Yet, with the current financial situation in this country, we find it incredibly exhausting to simply live,” Whistler said. He works full-time as an operations manager and earns about $50,000, while his wife works part-time as a bartender and earns $20 an hour in Orlando, Florida. They don’t have any child care expenses yet, but the basic costs have added up.
Grocery prices in the U.S. are 25% higher than they were four years ago, and the average rent for listed two-bedroom apartments has increased 19% during this period, according to Apartmentlist data. As home prices and interest rates have risen over the past two years, the median monthly mortgage payment has jumped 83% to $2,268 in 2023 from $1,242 in 2019, according to Bankrate.
The result: One in three consumers surveyed told Bankrate they have less emergency savings than a year ago (compared to 30% who said they have more now).
How to Build Savings by Paying Off Credit Card Debt
About 36% of those surveyed by Bankrate want to tackle their debt and savings at the same time (the highest percentage in seven years); 28% prioritize increasing emergency savings; and 25% are prioritizing debt repayment.
It can be difficult to save money while paying off high-interest credit card debt, but it’s necessary. “If people don’t prioritize saving, it will lead to significant suffering later,” said Catie Hogan, curriculum manager at financial education firm Parthean.
Choose an approach to managing your credit card debt
Hogan recommends the “snowball method,” which means arranging debts from highest interest to lowest, then paying as much as possible on the highest debt and minimum payments on everyone else. During this time, people should pay their expenses with cash or debit, rather than continually increasing their credit card balance.
The other widely used approach is called the “snowball method,” where people pay off their lowest balances first. “This can give you some quick benefits in terms of paying off some cards in full faster to help you build momentum,” said Rob Williams, managing director of financial planning at Schwab SCHW,
“The downside is that it may take longer to pay off your total debt and cost you more in interest.”
Create a spending plan
Williams encourages people to create a spending plan. “Start by taking a realistic look at where your money is going. Try an expense tracker to help you keep tabs on what you’re spending and why. Then decide what trade-offs you need to make. Having a spending plan is liberating because it puts you in control.”
Bankrate’s McBride said: “Evaluate what else you can do – even temporarily – to generate cash to use to cover credit card debt: Identify expenses that can be cut or eliminated such as subscriptions; sell unnecessary items online or at a yard sale; carry out freelance or contract work, or undertake further part-time work only until the debt is paid in full.
Automate your savings
In the meantime, people should also automate depositing a portion of their paycheck directly into a savings account, McBride said. Some high-yield savings accounts pay account holders more than 5% interest, which will help them grow without any additional effort. The goal is to finally have an emergency fund that can cover three to six months of living expenses.
“Reflect on how you got into credit card debt. This may mean evaluating your relationship with money and examining your personal beliefs and habits around money,” Hogan said. “If you struggle with overspending, it’s important to make small, sustainable changes.”
Once you pay off your credit card debt, commit to paying off your monthly balance whenever possible so the cycle doesn’t start again.
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