Average credit card balances spike 25%, but that’s not the worst part

America's credit card debt is ballooning and payments barely cover the principal—a dangerous combination for borrowers trapped in high-interest debt.

According to New York Life’s latest Wealth Watch 2024 survey, average credit card balances shot up to $7,932 at the end of 2023. That’s a 25.4% increase from 2022.

If that wasn’t bad enough, Americans are now allocating an average of $363 per month toward their credit card debt—down from $430 at the end of 2022.

Smaller payments are a double-whammy for consumers because they’re putting less money toward their debt while interest rates are soaring.

Experts say inflation is a big reason why consumers are making smaller credit card payments.

“It tells you that people are really struggling in the wake of stubborn inflation, rising interest rates, and other financial headwinds that they’ve faced for several years,” said Matt Shulz, chief credit analyst at LendingTree. “People have less money to contribute to their financial goals like paying down debt.”

The New York Life study found that more Americans are worried about the overall health of their finances. The most common word to describe their financial situation heading into 2024 was “stressed” (36%), with “anxious” (31%) not far behind.

The study was conducted in the fourth quarter when Americans added $50 billion to their credit card balances, bringing their total credit card debt load to a record $1.13 trillion.

Financial watchdogs have warned that the dangers are only growing as major credit card companies find sneaky ways to gouge their customers.

Interest, fees add up

Average credit card interest rates reached an all-time high of 21.47% in November, according to data from the St. Louis Fed. But some of the country’s largest credit card issuers charge much higher rates.

According to the Consumer Financial Protection Bureau (CFPB), the largest credit card issuers charge an average APR of between 22.99% and 28.49%. In other words, 8 to 10 percentage points higher than the rates charged by smaller banks and credit unions.

For credit card holders with a balance of $7,932, that’s up to $800 a year in extra interest charges.

The CFPB also determined that 15 credit card issuers charge a predatory interest rate of 30% or more. All that feeds into an industry that collects $130 billion in interest and fees from Americans each year.

Many of those fees are nothing more than price gouging, the CFPB says.

This problem hasn’t gone unnoticed, as the financial watchdog has spent years going after so-called “junk fees,” which it describes as “fake services that cost almost nothing to deliver.”

Americans are still on the receiving end of those unnecessary fees, and it couldn’t come at a worse time.

A vicious debt cycle

Creditnews recently reported that nearly one in two Americans don’t have enough money to cover a $1,000 emergency expense.

That’s because most are living paycheck to paycheck, and even that isn’t enough to cover their living expenses.

According to Bankrate, nearly a third of Americans say their credit card balances exceed their emergency savings. Meanwhile, a 2023 study by Clever Real Estate found that roughly a quarter of Americans go deeper into credit card debt each month to afford essentials.

“These days, it's harder for consumers to see the finish line at the end of their debt journey,” Melissa Lambarena, a credit card expert at NerdWallet, told Newsweek.

“A prolonged debt journey can also impact other financial goals. It could mean delaying savings, a much-needed vacation or a large purchase,” she said.