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Americans spend $250 billion a year on credit card interest. That is one quarter of the trillion dollars spent annually on the national debt. Both are a considerable waste of money and will likely lead to not so good outcomes.
Why do people use credit cards as they do? Some claim it is necessary for living expenses, some just overspend, some may be subject to various pressures like keeping up with the Jones’s, still others make no provision for emergency funds and get trapped in debt.
I think it can be summarized in most cases as poor financial planning and irresponsible behavior. In any case, those interest payments are taking from their future.
Most people are underpaid. Many are trapped paycheck to paycheck. This includes many people who would otherwise be responsible if they could just have an opportunity to dig out of their debt. It’s easy to say, well they should have rented a smaller apartment, but maybe that’s not an available or realistic choice. A lot of people have to own cars. It’s not a choice to have to buy new tires and gasoline.
Even with Obamacare, a huge amount of debt and bankruptcy are due to medical costs. In most cases, the need for medical care is bad luck, not problems caused by personal responsibility. (And why is medical care so much more expensive in the US than other wealthy nations, like across Europe?) People should not be blamed for situations truly out of their control.
I’m not saying that a lot of people don’t handle finances well or that some need of medical care isn’t due to self-destructive behavior. But looking at the systems we have to negotiate, as capitalism gets less regulated, more individuals need to scramble to pay their way.
Credit cards are designed by our corporate overlords to make a profit. We own stock in banks and credit card companies. Why? Because we expect them to have high revenue streams of interest and fees and to grow. This is proof that the system is designed to suck money from creditcard holders and that we are well aware of this.
Underpaid, trapped, opportunity? There is a lot I could say about your perspective, but this is not the place. So let me summarize.
Every generation faces its own problems, challenges, obstacles and opportunities and now is no different except I would say there are more diverse opportunities.
I suspect every generation or part of it, has a set of excuses as well.
Some of the problems and challenges are created by the generation at the time.
Finally, it appears to me your comments regarding pay, investing and sucking money from consumers fail to understand that it’s all connected, each impacting the other, each driving prices, saving, our economy.
Each driven to a large extent by individual choice and responsibility.
Sorry, I guess I didn’t exactly summarize.
I agree that spending money on credit card interest is a waste, especially if you can avoid it. Early in my adult life, I ran up a credit card bill that took years to pay off. However, I did learn my lesson and, in fact, stopped using credit cards for many years (except for hotels and other places that required them). That all changed when I retired and could take advantage of cash-back rewards. These days, I estimate that I spend over $60K annually using credit cards. I have three, in fact. One for face-to-face purchases (retail/restaurant/gas, for example). I get 2% back on all purchases. Another one is used for on-line purchases, where I get 3% cash back but up to $2,500 in purchases (per quarter). This card gets compromised regularly so no long-term payments are made with this card. The third card is strictly for Amazon and Whole Foods, where I get 5% cash back. On occasion when necessary, I also use this card to make monthly payments (long-term) when direct deposit via checking is not allowed. In a given year, I estimate I get roughly $1,600 cash back. These days, it is nice that the credit card statement clearly show how much cash back you receive. At the same time, I pay $0 in interest or penalties since I pay the balance off each month (using autopay). Even if my checking account balance were to drop and could not pay the bill, our savings account is set up to cover that shortfall. Our savings account is also our emergency account and has a full year’s worth of anticipated discretionary expenses.
You should check out virtual card numbers for your second card. Citibank and Chase have it, I don’t know if anyone else does. I get a different card number for every online vendor and they can have their own expiration date, spending limit and lock to a particular vendor or only allow one charge and then auto lock. I haven’t had a compromised number in more than a decade. And I can email card numbers because only one charge is allowed, etc so no concern about getting it lost, etc.
I would like to know which card you have for 2% on all purchases.
I assume that’s a Visa card attached to a Fidelity brokerage account. I use that as my default too, except for Amazon, and another Visa giving 3% back on restaurants and groceries and 5% on gas. Over the years this adds up to serious money!
I think credit card debt is a lot like eating unhealthy food. Most people who carry a balance probably know that paying 20–30% interest isn’t a good financial decision, just as most people know that regularly eating junk food isn’t good for their health. But knowing something and changing behavior are two different things. Paying the minimum today feels much easier than paying off the entire balance, just as eating something convenient and tasty feels easier than choosing the healthier option. In both cases, the immediate reward or relief is felt now, while the consequences are mostly in the future. That’s why I think credit card debt is often less of a math problem and more of a behavioral and emotional one.
Good point. It tends to mask the real costs. It’s like driving. It all seems free until you realize what you pay in gasoline road taxes and receive the statement to replenish your toll pass account.
Credit cards for me is just for convenience, and it is sinful to pay on any balance, some rates are like 30%! Have you noticed, many restaurants, doctors, car dealers and the like, now charge you a fee if you use a credit card. No fee, if you use a check or debit card. I do understand some folks have to live paycheck to paycheck, and I pray they improve themselves to get out of that rut.
Yes. Last week I had a podiatry appointment at a practice I’ve gone to for 20 years and they had a sign posted asking patients to please pay by check or cash if they can. My treatment is not covered by Medicare or commercial insurance, and the doctor has just raised his cash price from $75 to $80. They used to have bags with their practice name printed on them (if you purchase supplies) but they stopped that and instead the staff brings in used grocery store bags.
I can’t think of medical care by a podiatrist that would not be covered by both medicare and regular health insurance.
Today many use credit cards just to get by. From AI: Why Usage Is High
That’s a bridge with a very heavy toll.
Those reported as living PtoP is way overstated and mostly based on self reported surveys.
Per AI during my working years (1979-2020) wages for the bottom 90% of earners (my cohort) grew just 28.2%, while inflation during that period was 359.94%, or 16 times the increase in wages.
It’s interesting that I don’t remember people complaining, they just dealt with it.
From 2020-2026 inflation has been 24.65% while wage gains have, for typical full-time U.S. workers, risen by about 38%. So wages have more than kept pace with inflation, but yet families nowadays are constantly complaining they can’t keep up with inflation.
🤔
David, did you check the source data for the AI’s figures? My first thought is that it’s mixing up nominal and real wage increases. A 28.2% real growth figure already has inflation subtracted out. That means wages actually outpaced inflation by 28.2% over those four decades, rather than lagging behind it.
If you stay in one job, never promoted, if there is no excess demand for your skills, no shortage of workers, your wages are very likely not to grow faster than basic inflation, maybe not that.
Why would any employer large or small pay more than necessary? If they did and their earnings were harmed, the stock price would suffer with consequences for investors at all levels.
If employers were forced in some way to pay higher wages, there would be other consequences like higher prices, more automation and use of technology, getting by with fewer work hours, fewer workers.
Large employers have to please, customers, employees, maybe unions and shareholders for publicly traded companies. Sometimes those are aligned, sometimes not. But even one can’t be totally ignored.
The better question might be, Why don’t more people use credit cards and pay off balances each month? Lots of reasons here but with some discipline it’s doable, and some nice financial perks any Humble Dollar reader would appreciate. We’ve accrued several+ thousand $ annually for years. Then again if everyone paid balances in full each month, these perks likely would dry up.
Actually those perks are paid for by the fees charges to merchants while interest is the profit driver. I have one of my cards linked to Amazon so I can use rewards to buy anything. The other with cash back I just offset some of the bill or transfer the cash to my bank account.
Up until 9 years ago my wife & I used our CC irrespoĺnsible. We went through Ramsey, I got a 2nd job within a year we all good. Then 5 years ago we started using them again for everything (can’t pay the mortgage or condo fees) with the CC. But what is different is ever week or so I pay the balance. We charge X$ but when the statement comes we generally owe 5% or less of what we charge. We get the CC points. We still use the Ramsey budget sheets. It works great for us. Have not paid any interest since doing it this way.
Poor planning and living beyond their means. The only time I ever paid interest was when I forgot to pay on time. Now that I have auto payments for my 3 CCs, I never pay interest.
I agree that credit card interest is an enormous drain on household finances, especially when you consider what those dollars could become if saved and invested instead.
But I’d hesitate to characterize all—or even most—credit card debt as irresponsible behavior. Certainly, some of it comes from overspending and poor planning. But medical bills, job loss, divorce, unexpected home or car repairs, and simply living on a low income can quickly push someone toward a credit card when there are few other options.
Perhaps the larger lesson is the importance of building financial resilience when we have the opportunity: living below our means, maintaining an emergency fund and avoiding lifestyle inflation. Those habits don’t guarantee we’ll never need debt, but they give us a much better chance of avoiding the trap.
And I completely agree with your last sentence: interest payments today are taking money from our future selves.
The goal of establishing a prudent lifestyle with adequate disaster funds is paramount to financial stability. I realize that for many low and moderate wage earners, this is easier said than done. Still, I hope this is the take away from this discussion.
Of course. The lowest income quartile may struggle, but gradually with prudent behavior and time it can be done.
Much of the doom and gloom about personal financial is generated from surveys. (Including about credit card use) Hardly a reliable source.
Does anyone believe 60% of Americans live P to P indicating they have insufficient income as often implied?
Yes, believe it. For those who struggle financially, it is not because of imprudent behavior, so it cannot be done with prudent behavior. You can’t get blood from a stone.
53% of Americans carry credit card balances to cover essential living expenses like food, housing, and utilities.
Key Debt and Usage Statistics
If 46% of cardholders carry credit card debt, how can 53% of Americans carry credit card debt to cover essential living expenses?
The 46% is probably per card. An individual might pay off one card every month, but have a balance on another one.
53% of Americans is greater than 46% of cardholders since all Americans don’t have credit cards so both those numbers can’t be correct.
More than 60% of Americans self-report in surveys that they live needing their next paycheck to cover their monthly bills.
This may be more a reflection of the economic pressure that working Americans feel at the gas pump, grocery store and doctor’s office. A study by Bankrate instead placed that P-to-P figure at 34%, and pointed out the varying definitions of the term “paycheck to paycheck.”
The Federal Reserve found that 54% of American households have emergency savings to cover three months of expenses, which means of course that almost half do not.
However, the fanciful idea that the lowest income quartile can lift themselves out with “prudence” would only be publicly expressed by someone who has never seriously conversed with a member of that quartile. One morning — just one — of volunteer work at one’s local food bank would promptly dismiss that idea forever, but one must be willing to expose oneself to real life for that to happen.
Andrew, your third paragraph lists what I would consider responsible financial behavior except I would add carry adequate insurance protection in all forms. The absence of doing that seems a tad irresponsible to me. Consider what I write below. Less than half of those with credit cards carry a balance.
Self insurance for non-catastrophic risks can be the best financial decision in some circumstances. For instance no one should really pay premiums to insure their phone as it is very poor value. Carrying CC debt for a month or two on a replacement sounds a better choice than a lifetime of premiums.
I’m not sure about the cost to insure a phone, the internet is saying it’s from $8 to $18 per month. So say, at $10 per month, I have saved about $4000 over the years by not insuring.
Rule of thumb, don’t insure risks that you could easily cover on your own.
And don’t forget that most people lease cell phones in the US.
Exactly my point. But in Quinntopia that would be reckless if you temporarily needed CC cashflow to cover you for replacement of an uninsured item.
It seems for most Americans there are alternatives to credit card debt.
According to the Federal Reserve’s latest 2025 household survey, about 37% of American adults carried a credit-card balance at least once during the previous year. Among people who actually have credit cards, the figure was 45%.
Well the economy wouldn’t be nearly as robust if people didn’t spend as freely, which fuels our index funds upward.
This would be a great posting on a web site with the name “HaughtyDollar”.
I’m old enough to remember when “establishing credit” was drilled into us when we turned 18 in the 1970s. That was before they were passing out credit cards like Halloween candy. We were instructed not use the card if we had no intention to pay it off fully by months end. I never could understand why anyone would go into credit card debt. I know people who went on vacations they couldn’t afford and slapped it on their card, the vacation is over and they end up paying for that vacation twice over for years. I also believe that hearing people have to go into credit card debt to meet their basic needs is a bunch of crap.
Obviously you never had to pay for a surgery out of pocket because your health insurer wouldn’t cover it. Or $70K in storm damage to your house because your homeowner’s insurance refused to cover more than $12K. Or got laid off after three months on the job because of “market conditions.”
Mazel tov on your good fortune.
“What are others worth that they have the nerve to sneer at any human being?” ― Graham Greene
No credit card company would give you a $70K line of credit without excellent credit, high income, and substantial assets.
Spread out over five cards at a time when I was hospitalized with cancer, both the assets and the income dried up in a hell of a hurry. And the debt stayed on those cards for a very long time.
But I didn’t lose the house.
What you call “a bunch of crap” is the real-world life for real people.
Maybe not, but I got one with a $15k credit limit and at the time I didn’t even have a job. Chris
I’d be very interested, Dick, to know what practical life experience has led you to the airily condescending conclusion that “in most cases” credit card debt is a symptom of irresponsible behavior.
I don’t doubt for a moment that such behavior is widespread, but those of us who “claim” to have experienced six-figure medical bills, five-figure house damages and four-figure daily living debts after job losses — experiences you fortunately have avoided in your life — might strongly suggest that you consider other possibilities with a slightly less judgemental tone.
There’s a real world out there. As I have suggested to you previously, you might want to actually get out and sample it.
Yes, there is a real world and you see it displayed every day in Americans saving and spending habits (which have been discussed here many times).
As I am sure you know, the experiences you illustrate are far from everyday occurrences and common sense tells me there are always exceptional situations and hardships that befall individuals.
If you look up the reasons people get into credit card debt, you will see the reasons mostly boil down to behavior- easily to be labeled overspending and failure to be properly insured against risk, no emergency funds, etc.
The average credit card balance ($9,600) is carried by those 45-60. Individuals who had time and experience to know better.
So yes, there are exceptions, but I stand by my statement. In “most” cases, high credit card debt and interest payments are the result of irresponsible financial behavior.
The experiences I illustrate may be “far from everyday occurrences” in your rarified atmosphere, but in a nation where 41% of Americans carry medical debt (according to the Kaiser Family Foundation) and much of that debt resides on credit cards, it’s very much a daily reality for millions of people who have been anything but irresponsible.
But clearly that message isn’t getting through. Sadly, smugness is incurable.
Here’s an example from my real life. When my husband got out of the army, we moved 1000 miles to Wisconsin so he could accept an assistant professorship. The pay was $11,000 a year. We had saved enough from his army pay to be able to buy a house. In the week before the move, one of our two toddlers was hospitalized with a fever of 106. Turned out to be just a kid thing, but the timing meant my husband had to drive to WI, and I had to fly a week later with the two kids. We had health insurance, but the plane tickets were an unexpected expense. Shortly after we moved into the house. The roof started leaking. The roof needed to be replaced— didn’t show up in the inspection. My husband grew up in an apartment inNYC and had never done any repair work. He got instructions on rerefooing from a DYI outlet and devoted his evenings and weekends to the roof. I went to the DIY and bought the bundles of shingles— on our credit card. We knew nobody in Wi and had to handle the project on our own. I’d like to say that we paid off the card balance at the end of the month. But that would have been truly impossible. Life happens— maybe not to the Quinns!
In my mind, I’ve had a propensity to blame not responsible habits for credit card debt; not sure why that is. But you bring up a good point, so I asked the ole interweb, and this is what I got back:
The data demonstrates that the majority of revolving credit card debt stems from living expense gaps, inflation, income volatility, and emergency expenses rather than purely frivolous spending.
So I stand corrected. This is still another example of why we need to keep the “humble” in HumbleDollar.
Irresponsible behavior is not simply frivolous spending. I would also add that one can overspend and it may or may not meet a frivolous standard for some people.
Is a few days at Disney with family put on credit cards, frivolous? I say If such a trip has to be on credit paid over time. It’s irresponsible, but I bet many people would not see it that way.
Irresponsible financial behavior can be tied to all the things you cited, Dan, all of which we have discussed here.
In my opinion the ease of simply using a credit card enables much of that behavior.
I worked with a guy who would go on a family vacation every year (sometimes twice a year) and put it on his CC. He was still paying for vacations that were 4 or 5 years ago. I’ve always wondered what his cost for the vacations were when he took them and the actual cost paying them off for months and months and months. He always complained wasn’t paid enough.
We all know people like that.
We also all know people who endlessly cite people like that as justification for sweeping, universal opinions.
So, you feel the majority, perhaps great majority of credit card debt and resulting interest payments are the result of daily living expenses and emergency spending for which there is no alternative.
People have different definitions of “necessary” expenses as well. How many streaming music, gaming, and video services are “necessary”? Since a basic cell phone plan costs $15/month, how much higher of a bill is “necessary”?
When I was renting out a house to a section 8 recipient, I discovered that she was spending more than I did, and I had a larger family. And she felt trapped because she was only paying the “minimum expenses”, which included guilt expenses of not having enough time for the kids so bought them subscriptions and lots of stuff.
Versus irresponsibility or frivolity, yes. Without question.
money sharks used to charge really high rates but now they compete with banks offering credit cards. Btw. That $250 billion pays for the rewards many of us get. Thank you!
Actually the transaction fees that businesses pay (and now frequently charged to customers) are what pay for the rewards. The interest is the profit driver. I was told by a representative when I called about a credit card transaction that people who pay their balance every month are called “dead beats” the opposite of what I would think.
I’m guilty, Nick. I use the heck out of those rewards, and they probably help me a lot less than those paying the high fees get hurt.
i think this post minimizes the economic reality of a very large portion of American society, Too many people just don’t have enough money and easily fall into the credit card trap.
Recently, a major candidate for governor in WI was sued by Capitol One for non payment of $30,000 of credit card debt. I thought that revelation would sink her candidacy— the governor is in charge of the state budget. Quite the contrary, the suit was seen as evidence of experience of the working class reality.
Thank you, Marilyn. You said it more eloquently than me. Chris
Our Treasury Department is paying its 30-year mortgage with its credit card via the bond buyback program. The NY Times has an Op-Ed where the author argues for Sumerian-style debt cancellation.
Strange times indeed.
I read that article and it’s a bit unnerving.
I am saddened to think of those needing to take on credit card debt. But I have read on this site praise for various credit card rewards programs. Were it not for the former, those rewards programs likely would not exist. So many of us are complicit in wanting the system to continue to disadvantage others.
We are just following the example set by the federal government😵💫
If I fill one credit card up, I’ll just get me another one!
Careful Dan, some in the beltway may think your comment is serious.
Be careful not to punch down too much from a position of privilege. Sure there are lots of people just rubbish at managing personal debt (and often related to an inability to defer “wants”) and thus the Dave Ramseys have a field day.
But for some it is definitely a mental health issue or an education issue and then there are those who are in desperate need sometimes. At least for the latter the legalised loan sharks of the CC industry provide some buffer from the leg breaking kind.
For some going through the CC debt phase is a necessary life lesson. I had a schoolfriend who skipped college and started work at 18. He had decent income, low initial housing costs and could afford to take out car loans and extend CCs for lifestyle. It enabled him to be the big man while the rest of us has negative net worth. He got a realty check after a few years when he realised he had no spare income and fairly ruthlessly cut back.
Well, IMO, the credit card companies are not really the injured party in people not paying off their credit cards. Have you looked at the terms on your credit card? The interest rate? The late fees? How long it takes to pay something off if you make the minimum payment? Did you know if you pay off your card in installments that you get charged an extra month of interest the month after you pay it off? Can you tell I hate credit cards? Chris
I wonder how much of those high interest rates are because of the people who don’t pay on time or at all.
Rest assured … Just like we all pay indirectly for retail theft
I think they will charge whatever they can get away with, to be honest. Yes, I agree people should pay their bills, but most of the people here in the forums are blessed, including myself. We are not living hand to mouth like some Americans. C
No, we are not blessed, we are common sense people, too bad we are just a minority.
So, the flip side would seem to be that ALL that those not like us do not have ARE Curses.
It’s certainly a staggering amount of interest. I recently read that around 60% of credit card accounts carry revolving debt rather than being paid off in full each month. I’ve often thought the very low minimum payments are part of what sucks people into credit card debt in the first place—if someone got their first credit card knowing upfront that the minimum payment would be 20 or 25 percent of the balance, they’d likely think twice before running up a large balance to begin with.
Can you estimate the number of people who pay this interest, and of them, how many pay interest for a short term before retiring the debt versus the number who have chronic credit card debt and who make regular monthly interest payments for years?
The 2009 CARD act requires the CFPB to send this data to Congress every two years. With the gutting of expertise in this department, let’s see if the 2027 report will still be useful.
From the 2025 report, we can estimate nearly half (49%) of active general-purpose credit card accounts carried a revolving balance in 2024, meaning interest was being charged on balances carried from prior billing cycles. More strikingly, 13% of general-purpose accounts were in what the CFPB calls “persistent debt”—where interest and fees during the year exceeded half of all payments made on the account.
Thanks for the reply, Mark.