In baseball and other competitive sports often the victory goes not to the most talented, but to those who minimize mistakes. Sure, everyone makes mistakes. But the winners often avoid or minimize stupid mistakes; the avoidable ones that leave you angry with yourself.

The same is true in personal finance. If you don’t self-destruct, if you avoid spending money on ridiculous things, then you will often have enough money to buy the things that are important to you and your family.

I thought about this as I was recently writing a story on new reports that document how Americans are still mashed on debt and have been for years, especially credit card debt. Card debt is the worst, priciest, way to access money.

“Will You Loan Me Money at 18% Interest”

Americans, in good times and bad, love debt, especially plastic, despite its steep price.

Those are some of the conclusions of NerdWallet’s latest debt reports, which show mortgage and credit card debt levels rising.

“Turning to credit card debt is one of the worst options when you are trying to manage money,” says Kimberly Palmer, a NerdWallet card expert. That’s because interest rates on cards are often about 18 percent.

“People have been feeling optimistic and, when they do, it is tempting to use credit cards,” she adds. Many U.S consumers have not resisted temptation.

Debt levels have been rising for years. U.S. households now owe some $12.35 trillion in total debt, about $930 billion of it card debt, according to NerdWallet’s American Household Credit Card Debt Statistics 2017 report along with its newly issued quarterly figures.

Thousands in the Hole

The average household card debt is some $16,000. That comes with hefty interest bills.

“Credit card debt is one of the most expensive types of debt, and consumers who carry it pay an average of $1,292 per year in interest on it, assuming an average annual percentage rate of 18.76 percent,” the 2017 report said.

But since last year the average household card interest bill, NerdWallet said, has increased some more. It is now over $1,300 because of the recent Federal Reserve interest rate hike. Another rate increase is also expected this year and millions of Americans will be affected.

That’s because the Federal Reserve said more Americans have been carrying card debt over the past few years. This means paying interest on card debt each month.

The Fed, in its Survey of Consumer Finances, said households that have card debt from month to month increased to 43.9 percent from 38.1 percent since the end of 2013.

Not a Good High

The average credit card household debt is approaching the historic high of before the last recession, NerdWallet said. It noted that, if current trends continue, it could reach that perilous number next year. That is unfortunate, Palmer says.

Why are Americans charging more?

“About two in five Americans who have ever had credit card debt (41%) reported that spending more than they could afford on unnecessary purchases contributed to going into credit card debt,” the 2017 study said. The next biggest use is paying medical bills. The problem is widespread.

The Rich and Poor Go in Hock

For instance, NerdWallet said the potential abuse of card debt affects both independent contractors as well as employees (See Notes: “Independents Deeper in Debt Than Employees”), the rich as well as those of modest incomes.

“We don’t see this problem as much since we primarily deal with high-net worth individuals, but we do see it. Very often clients will say. ‘Oh, I have $35,000 in credit card debt at nine to 18 percent,’” says Robert Karn, a certified financial planner in Farmington, Connecticut. “I immediately ask why?”

He says consumers need a plan to prevent card debt from taking over their lives.

Just as card companies aggressively market products to the average American, so the average American must have an aggressive plan to escape card debt, advisors say.

“People struggle to get out of debt because they don’t have a wise and coherent strategy to pay down debt,” says advisor Garrett Gunderson, founder of Wealth Factory in Salt Lake City.

He advocates restructuring loans by “rolling short-term high interest into long-term low interest loans.”

Keep an Eye on the Red Ink

Karn says clients in card hell must track spending.

“I tell clients,” he adds, “look you’re paying nine to eighteen percent on these cards and the bank is only paying you one percent on your savings. We must do something about this.”

For those serious about controlling card debt, Karn warns, there will be pain.

“There’s no way to get around it,” Karn adds. “You must have spending discipline.”



Independents Deeper in Debt Than Employees

Working for yourself can be great, but it can come with a big price: The self-employed usually have bigger credit card bills than employees, according to NerdWallet.

“U.S. households led by self-employed individuals,” NerdWallet said, “usually pay $1,194 in credit card interest each year, compared with $843 for those who work for someone else.”

Why the bigger debt?

NerdWallet says irregular income and business expenses put the self-employed deeper in the red than those who work for others.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post.

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