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Fox-26 Houston
Only half of American credit card customers believe they can pay off their December balance in full, according to an industry index. This suggests that “credit card confidence” is waning as the country emerges from the holidays.
The LendingTree Credit Card Confidence Index, a monthly survey published by the personal finance website since 2018, fell to 51% in December, an all-time low.
In a nationally representative survey of 1,514 cardholders, only 51% were confident they would be able to pay off their card balance this month. In November the confidence index was 58%.
As trust in credit cards declines, many other industry metrics move in the opposite direction.
The national credit card balance is at $1.08 trillion, a record high. The average interest rate has reached 21%, the highest recorded by the Federal Reserve in nearly three decades. Some retail cards now charge fees of more than 30%.
“It was hard to imagine that growing debt, rising inflation and soaring interest rates wouldn't eventually take their toll,” said Matt Schulz, chief credit analyst at LendingTree.
Credit cards are the fastest-growing category of household debt
LendingTree's index joins a chorus of industry warnings about card debt. A regular Bankrate survey found that 47% of cardholders were in month-to-month debt in mid-2023, up from 39% at the end of 2021.
According to a TransUnion report for the third quarter of 2023, the average card customer owes $6,088, up from $5,474 at the same time in 2022.
Credit card debt is rising faster than any other major category of household debt, according to a November report from Wells Fargo Economics.
“I think all of this is leading to more people carrying more debt for longer periods of time, and unfortunately I don't see that reversing any time soon,” said Ted Rossman, a senior industry analyst at Bankrate.
LendingTree began monitoring credit card trust at an opportune time. Card fees jumped in 2022 and 2023 after hovering between 12% and 15% in several previous years. The increase reflected a broader rise in lending rates sparked by the Fed in a series of historic rate hikes, a campaign in turn triggered by rampant inflation.
Before the December decline, the Credit Card Confidence Index had last bottomed in June 2022, when annual inflation hit a 40-year high of 9.1%. This month, only 53% of cardholders said they were confident they could pay off their balance.
The credit card index peaked at a confidence level of 74% in October 2020 as interest rates were extremely low and federal stimulus measures were easing. The index has gradually declined in each year since then, to an annual average of approximately 66% in 2021, 62% in 2022 and 59% in 2023.
Women worry more than men about credit card debt
Women were the driving force behind the recent plunge in the LendingTree index, with just 40% expressing confidence they would be able to pay off their card balances in December, compared to 64% of men.
That's a big difference, but women have consistently expressed lower confidence than men over the five years of the survey.
Schulz, the LendingTree analyst, believes that women “take a slightly more conservative approach to their finances” than men.
“Men may be a little more confident than they should be,” he said, “while women may be a little less confident than they could be.”
Catherine Valega, a certified financial planner in Boston who specializes in women's finances, says female consumers may feel overwhelmed during the holidays because of their historic role as gift givers and domestic procurers.
“Women tend to give gifts, and they also tend to manage things in their household,” Valega said. “Who doesn’t spend more at the end of the year?”
Industry analysts expect card fees to fall in 2024, especially if the Fed sticks to its forecast of modest interest rate cuts in the new year.
But even a two full point drop in average card rates would only bring them down to about 19%, which is still a historic high.
“I’m not sure people would notice that big of a difference,” Rossman said.
Here are some tips for reducing credit card debt
What do you do if you suddenly find yourself under water as a credit card customer?
Rossman recommends that consumers who have debt on a high-interest card consider transferring some or all of the balance to a zero APR card. Such cards typically set the monthly interest rate at zero for a period of 15 months or longer, allowing customers to focus their payments entirely on debt.
“If you use one of these correctly, you can save a lot of money on interest,” Rossman said.
More: How to get out of credit card debt and stay debt free
Consumers with weaker credit who may not qualify for a zero APR offer might consider a nonprofit organization like Consumer Credit Counseling Service. Credit counselors can intervene with the card company. “Often they can negotiate an interest rate of around 7% to 8%,” Rossman said.
Cardholders can also benefit from a few simple rules when using their cards, Valega said. One is to only charge as much as you can pay back that month. Another option is to set up automatic payments on the card. It's even better if you can choose the option to pay out the entire balance automatically at the end of the month.