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Credit card debt is on the rise — here’s what that means for your bottom line

Sept. 12, 2021
4 min read
Credit card debt is on the rise — here’s what that means for your bottom line
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From a personal finance standpoint, last year was unlike any other. Thanks to a series of stimulus checks and a widespread urgency to save, total U.S. credit card debt decreased by $76 billion during the peak of the pandemic.

One year later, vaccines are now widely available, people are traveling again, and people are spending again. The Fed recently released its quarterly household debt and credit report for April through June. As you can gather from the name, it evaluates the country’s debt levels by category — such as mortgages, auto loans, and credit cards.

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The total debt balance is just under $15 trillion as of June. Last quarter, it rose by $313 billion, which was the largest increase since 2007. Credit cards played a role, as the total credit card balance rose by $17 billion, ending four consecutive quarters of declines during the pandemic.

Clearly, consumer spending (and confidence) has recovered since the height of the pandemic, as credit card balances have rebounded. But more spending means less saving.

Since the onset of the pandemic, the U.S. personal savings rate — the percentage of disposable income that’s saved — has ranged from 13% to nearly 34%. In June, it fell to 8.8%, aligning with the historical rate range of about 7-9%.

More people are dipping into their savings to pay bills. That could become a problem.

Delinquency rates are still high

The total debt balances in the Fed’s quarterly report are eye-catching, but the more telling metrics are the delinquency rates.

As of June, approximately $405 billion, or 2.7%, of all debt was in delinquency. Of that amount, $316 billion was at least 90 days late or “severely derogatory.” Credit card delinquency ticked down from 10% to 9.3% quarter to quarter but is still well above pre-pandemic levels.

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Related: What to do if your credit card is delinquent — and how to prevent it from happening

More importantly, as the report notes, these percentages are still somewhat suppressed by forbearance programs, which offer borrowers support during periods of financial hardship. This could be in the form of lower interest rates, deferred payments, or waived late fees.

But forbearances don’t last forever. Eventually, borrowers need to settle their debts with their lenders. This is especially true with credit card issuers, as unpaid balances usually still accrue interest.

Related: The Fed plans to keep interest rates low in 2021 — what that means for your credit cards

Considering credit card debt is expensive, many borrowers could soon find themselves in a financial hole.

Rising credit card debt could become a problem

Credit cards are useful tools people can use to pay daily expenses and accumulate rewards in the process — like points, miles, and cashback bonuses. A rewards card could generate 3% cash back or double miles on every purchase. In essence, it’s a way to get a little more bang for your buck. However, they can quickly become counterproductive if borrowers get behind on payments.

Related: The best rewards credit cards for September 2021

Credit card debt is expensive; their interest rates are much higher than other forms of debt. As of May, the average interest rate for credit cards was 14.61%. And that’s the average — it’s not uncommon for credit card rates to exceed 20%. In comparison, the average 60-month auto loan was 5.05%.

So, what happens if you don’t pay off a credit card balance when your bill comes due? You’ll owe interest on that amount. If this continues, the amount you owe compounds, making it harder and harder to pay off the last statement balance. Since credit card interest rates dwarf the percentage return of a rewards program, it completely offsets the benefits of accruing points and miles.

That’s why it’s important to routinely pay off your last statement balances.

If you’re having trouble paying off your credit card balances, you may need to explore ways to prioritize and repay your debt. For instance, the avalanche method and snowball method are two popular approaches for adopting a debt-repayment mentality and digging out of a financial hole.

Related: Need help organizing and tracking credit card due dates and payments? These tips can help.

Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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How we chose these cards

Our points-obsessed staff uses a plethora of credit cards on a daily basis. If anyone on our team wouldn’t recommend it to a friend or a family member, we wouldn’t recommend it on The Points Guy either. Our opinions are our own, and have not been reviewed, approved, or endorsed by our advertising partners.
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TPG featured card

Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards

2 - 10X points
10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day

Intro offer

75,000 bonus miles
Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

Annual Fee

$395

Recommended Credit

740-850
Excellent
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023
Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day
  • Intro Offer
    Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

    75,000 bonus miles
  • Annual Fee

    $395
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    740-850
    Excellent

Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023