Survey: Credit card debt is more common when net worth exceeds $100,000
Having amassed significant wealth on paper doesn’t always mean you’re financially stronger than those who haven’t.
According to a new survey from Bankrate Credit Cards, American adults with a net worth of $100,000 or more are the most likely to have credit card debt. This includes those with negative net worth.
“There are both good and bad debts in this world,” says Kayse Kress, financial planner at Physician Wealth Services. “In reality, good debt brings us closer to our financial goals… Bad debt takes us further from our goals – like buying a car out of our price range, adding to our credit card debt.”
Types of debt held by American adults
Besides the fact that net value42% of American adults currently have credit card debt, 27% have a car loan (lease or finance), 26% have a mortgage, 16% have a student loan, 12% have a personal loan, and 3% have a house. equity loan or line of credit.
Who has the most credit card debt
When it comes to who has the most credit card debt among American adults, those with a net worth between $100,000 and $199,999 take the cake at 57%.
Fifty-eight percent of those with a net worth of $100,000 or more owe at least $2,500 and 39% owe at least $5,000. This is a significant gap compared to the general population, as 51% of American adults owe at least $2,500 in credit card debt and 32% owe at least $5,000.
Which generations are affected
Gen Xers (aged 39-54) are the most likely to have credit card debt (51%), followed by baby boomers (46%), the silent generation (42%), the generation Y (37%) and Gen Z (15%) . Gen Xers are also more likely to have some type of debt in general (76%) than other generations.
These results are consistent with a recent study on North West Mutualwhich revealed that Generation X has accumulated more personal debt than Gen Z, Millennials and Baby Boomers.
What causes credit card debt?
The most common reason for accumulating credit card debt is daily expenses (28%), followed by retail purchases like clothing or electronics (16%), car repairs or maintenance ( 11%) and medical bills (11%).
These findings agree with 2019 report by CNBCwhich found that 23% of Americans go into debt to meet basic needs like food and shelter.
For American adults with a net worth of $100,000 to $199,999, 21% say daily expenses are the cause of their credit card debt. Twenty percent cite medical bills, 13% cite retail purchases, 11% cite home repairs and car repairs/maintenance, respectively, and 8% cite vacation expenses.
How you can eliminate your credit card debt
Regardless of your paper value, it’s critical to pay off your credit card debt as soon as possible, says Ted Rossman, credit card industry analyst for Bankrate. “It makes no sense to finance a posh lifestyle with credit card debt. It costs you a lot of money over time and jeopardizes your financial stability.
Track your expenses
If day-to-day expenses or unnecessary purchases are eating away at your wallet, start tracking your spending to figure out where you can afford to cut back.
Jared Andreoli, financial planner at Simplicity Financial LLC, asks his clients to look at their credit card statements in three-month increments to categorize their purchases. “It helps put a number on their spending, and they feel [their spending] so much more,” says Andreoli.
By reviewing past credit card statements, you can determine where you’re overspending and identify subscriptions or recurring payments you can skip, freeing up your wallet to make larger purchases.
You can go further by gamifying your spending, says Andreoli. Let’s say you’re tempted to go to Starbucks and order a coffee and a muffin. Each time you convey an unnecessary desire to spend, you can transfer $5 into your savings.
“It can help slowly change the negative feelings of spending money on something you don’t need into a positive, self-reinforcing feeling,” says Andreoli.
Create separate accounts for your spending needs
Once you have mastered your financial vices, consider dividing your disposable income into usage-related categories.
Cynthia Meyer, financial planner at Real Life Planning, suggests keeping or creating three accounts for cash management: checking, emergency savings, and planned expenses (like car insurance, travel, and annual subscriptions).
This forces you to plan for unexpected or occasional payments, such as a new drain pipe in your kitchen or a routine oil change.
“Building up a cash cushion will help you avoid dipping into your credit cards if you have an unexpected event,” says Meyer.
Consider a balance transfer card
Before choosing a balance transfer card, consider whether you can afford to make monthly payments based on the length of the introductory period and consider balance transfer fees. (Some cards offer lower balance transfer fees for transfers made within a certain time frame and increase fees after that time frame, such as the Discover it® Balance Transfer.)
You might also consider waiting to make purchases on your balance transfer card until you’ve completely paid off your debt, suggests Meyer.
The bottom line
“A lot of people think it’s either too late to start better financial practices, or they’re waiting to earn enough to start saving ‘properly,'” Kress says. “The key to reducing debt and creating healthy financial habits is simple; start now.”
If you need help with your credit card debt, visit Bankrate’s credit card refund calculator to create a monthly payment plan.
Bankrate.com commissioned YouGov Plc to conduct a consumer survey. The total sample size was 2,547 adults. Fieldwork was undertaken from November 13-15, 2019. The survey was conducted online and met rigorous quality standards. It used a non-probability sample using the two upstream quotas during collection, and then a downstream weighting system designed and proven to provide nationally representative results.