02
Mar

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In December 2015, the Federal Reserve published summary data on consumer debt in America, including the numbers on revolving debt — what we know as credit card debt. The numbers suggest that Americans will hold a large amount of credit card debt, no matter the state of the economy.

With the data out, you can now see how your credit card balance stacks up against your fellow Americans — for better or worse — and take away lessons on how to use credit cards to your advantage and not at the expense of your credit score or personal finances.

The Federal Reserve Report

According to the Federal Reserve’s findings, Americans owe $935.6 billion in credit card debt. This number is on the increase, as it has grown $100 billion in five years. However, it’s still less than Americans owed before the 2008 recession.

While borrowing may not be at its greatest height, these numbers do suggest that no matter the state of the economy — booming, crashing, or in between — Americans are spending with their credit cards.

These enormous numbers sound impressive — but what does it tell us about the average American individual?

On average, an American age 18-65 holds $4,717 of credit card debt. Making only a minimum payment, it would take someone with a 15% interest rate over 10 years and more than $20,000 to pay off that balance.

How to Use Credit Cards Wisely 

These numbers tell us that paying off your credit card debt not only reduces American reliance on credit, but it can personally save you thousands of dollars in interest and years of payments.

Of course, credit cards aren’t all bad. In fact, they can aid your credit score, increasing your power as a consumer and potential borrower. Someone with good consumer history and responsible credit card ownership gets a huge boost to their credit score over time.

Here’s how to get the most out of credit cards without sacrificing your financial freedom:

  • Pay on Time: Don’t make late payments. They can be reported to the credit bureaus and hurt your credit score, and you could be charged late fees or even have your interest rate hiked.
  • Maintain a Low Debt Utilization Ratio: Keep your credit card usage under 30% of the available limit. This way, you are helping your credit score and not maxing out your credit card.
  • Pay More Than the Minimum: The best way to use your credit card is to pay it off in full each month, avoiding interest charges but helping your credit score. If that is not possible, at least pay more than the minimum payment on your credit card. It cuts the amount you pay in interest and the time it will take to pay down your balance. The more you can put towards your credit card balance each month, the better.

Using these practices, you can be one of the millions of Americans that use credit cards without letting your debt become unmanageable. If more Americans learn how to do this, we can lessen our dependence on credit as a nation while becoming smarter, empowered consumers.

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How Millennials Treat Credit and Debt, According to Facebook — and Why They Should Change Their Approach