Breaking the stigma of credit card debt in America
If you’re one of the millions of Americans who have credit card debt, you’re not alone. Tally can help break the stigma surrounding debt.
Head of Growth at Tally
August 6, 2017
If you’re one of the millions of Americans who have credit card debt, you’re not alone.
Who do you think has more credit card debt: Someone who makes $30,000 a year or someone who makes $300,000?
Contrary to popular belief, lower-income Americans do not carry the majority of credit card debt in the United States. Wealthy individuals — even those with excellent credit scores — carry a significant portion of credit card debt in the US.
That doesn’t mean higher incomes are synonymous with high credit scores. But you may be surprised to learn that those with both high credit scores and higher incomes do tend to carry more credit card debt.
This is the case for a few reasons. First and foremost, those with low credit scores are considered riskier. So they’re less likely to get approved for cards. Instead, credit card issuers target prime consumers. These people have a proven track record of responsibly paying back debt. They also usually have more disposable income.
If your credit score is in the 700s or above, you’ve got your pick of nearly any credit card you like. It’s not just because you’ve earned a good credit score. Prime consumers (mid 600s and above) are poised to spend far more money than subprime ones. Banks know if they play their cards right, they can make a lot of money off you.
Here are a few reasons why credit card debt is rising among people with high incomes and high credit scores.
High-paying careers don’t come cheap
Working your way up to a six-figure income can be expensive. Many careers that promise lucrative salaries require taking on huge amounts of student debt, living in a city with a high cost of living, or working an unpaid internship to get there. Those opportunities can also bring with them additional costs and expenses.
You may not make enough to cover expenses early in your career. But no big deal. You can lean on your credit cards more now because you know you’ll make more later. Once your salary starts climbing, you can pay off those cards.
If only it were that simple. Making more money unfortunately doesn’t come with debt-dissolving superpowers.
Feel like you’ve been chipping away on an old credit card balance for years with no end in sight? That’s entirely by design. While making on-time minimum payments keeps your credit score in good standing, most of every minimum payment goes to interest, not the balance you owe.
What’s more, credit cards know exactly how to entice you to use your card even more as your salary increases.
The stigma of credit card debt
The fact of the matter is that credit card debt is a reality for many Americans. On average, Americans between the ages of 18 and 65 have $4,717 of credit card debt. If you count only people who carry credit card debt, that number is much higher. The average U.S. household with debt carries over $16,000 in credit card debt a recent NerdWallet study found.
If you’ve got credit card debt, know you’re not alone. While you may have used your cards as a backup or overspent on your cards, remember that credit cards are designed to entice you to do just that. They’re also designed to make it difficult to course correct.
Keep in mind the psychology at play here. Banks understand your financial behaviors more than you think. That’s why credit cards so are so effective at encouraging people to spend more.
You’re a more profitable customer if you carry a balance and pay interest every single month. So credit card issuers are motivated to get you to do just that. Their tactics include increasing access to credit, bundling cards with perks and rewards so people use them more, and charging unfair APRs to squeeze more money from customers.
Even if you’re committed to slashing your credit card debt, it’s not always simple. But we think it should be. This is the very reason we were inspired to start Tally. To make it easier to take back control of your credit cards, no matter how much you owe. To take the headache out of managing your cards and multiple due dates. To keep more money in your pocket so you can get closer to paying off those cards.
Try Tally for yourself. We can’t wait to help you get closer to being debt-free.