What GAO Found
Approximately half of active credit card accounts carried a balance during the period from June 2013 through 2019, according to GAO's analysis of a nongeneralizable sample of more than 650,000 credit card accounts from the Board of Governors of the Federal Reserve System. This included almost 35 percent of all active accounts in the highest credit score category (720 and above) and more than 30 percent of all active accounts in zip codes with median household incomes of $150,000 or more.
After the onset of the COVID-19 pandemic in March 2020, cardholders in the GAO sample generally paid down credit card balances and carried balances for shorter periods, according to GAO's analysis. Specifically, the share of all active accounts that carried a balance declined from 50 to 45 percent from April 2020 to December 2021 (see figure). Federal pandemic assistance likely contributed to these improvements. GAO analysis suggests that after March 2020, cardholders who carried balances increased their average credit card payments during the months when pandemic assistance payments were disbursed.
Percentage of Active Credit Card Accounts That Carried a Balance, 2019–2021
Note: GAO's analysis was based on a nongeneralizable sample of active general purpose credit card accounts. This figure excludes the percentage of active credit card accounts that were seriously delinquent (90 or more days), which was less than 1 percent during this period.
Cardholder accounts in the sample that were in billing zip codes with a majority of Black or African American or Hispanic or Latino residents likely had higher interest rates and lower credit limits and carried balances longer compared with accounts in predominantly White zip codes, as indicated by GAO analysis. For example, the difference in interest rates was on average about 1.3 percentage points. Cardholders in the sample that were in majority-Black or -Hispanic zip codes continued to face higher interest rates and lower credit limits as compared with cardholders in predominantly White zip codes who had the same credit scores, zip-code income distribution, and revolving status. While accounts in the sample that were in majority-Black or -Hispanic zip codes carried smaller balances than accounts in predominantly White zip codes, higher interest rates combined with carrying balances longer can result in higher credit costs.
Why GAO Did This Study
Credit cards are the most common consumer lending product by number of users, with 82 percent of U.S. adults holding a credit card in 2022. However, credit card adoption rates vary by race, ethnicity, and income. Consumers can use credit cards as a convenient means of payment and source of credit. Some consumers do not always pay off their monthly credit card balances and can accumulate interest and fees over time, which can lead to debt burden and affect their financial health. In addition, the COVID-19 pandemic caused significant economic disruptions and has affected consumers' credit card usage.
GAO was asked to review consumer credit card usage. This report examines (1) consumer credit card usage from 2013 through 2019, (2) how the COVID-19 pandemic and related assistance affected credit card usage from March 2020 through December 2021, and (3) how credit card costs and usage vary among racial/ethnic groups.
GAO analyzed a nongeneralizable sample of credit card data from the Federal Reserve for June 2013–December 2021 and used the Census Bureau's American Community Surveys to estimate the median household income and racial and ethnic composition in cardholders' zip codes. GAO also reviewed research from the Consumer Financial Protection Bureau, Federal Reserve, and academics. Further, GAO interviewed representatives of federal agencies, six large credit card issuers, three credit reporting agencies, a banking association, and a consumer advocacy organization.
For more information, contact Alicia Puente Cackley at (202) 512-8678 or [email protected].
FAQs
Younger borrowers are more likely to have lower credit limits, which can result in a higher use of their available balance. Gen Z borrowers have a median limit of $4,500, Fed data show. That compares with $16,300 for millennials, $21,800 for Gen X and $22,000 for baby boomers.
What are 3 benefits and 3 challenges to using a credit card? ›
Credit card pros
- Credit-building opportunities. Credit cards can be a tool to build credit over time. ...
- Rewards. Having the right credit card in your wallet can help you earn cash back, points or miles on common purchases. ...
- Travel benefits. ...
- Fraud protection. ...
- Purchase protection. ...
- Potential interest break. ...
- High interest rates. ...
- Fees.
U.S. credit card debt. The higher cost of everything from housing to high-tops to haircuts are a major culprit. Although inflation has moderated since it peaked in June 2022, Americans—particularly lower-income families—are relying more on credit cards to cope with the sticker shock.
What age group has the lowest credit card debt? ›
Gen Z Debt
Compared to the other generations, Gen Z has the lowest average credit card debt load and is second only to the Silent Generation (age 78+) for average non-mortgage debt overall.
Are Gen Z using credit cards? ›
Roughly one in seven (15.3%) Gen Z credit card borrowers have maxed out their credit cards, according to new research from the Federal Reserve Bank of New York. (The NY Fed defined Gen Z as borrowers born between 1995 and 2011, though others mark the cut off as 1996 or 1997).
How long will it take to pay off $30,000 in debt? ›
The minimum payment approach
If you only make the minimum payment each month, it will take about 460 months, or about 38 years, to pay off that $30,000 balance.
What is the 2 3 4 rule for credit cards? ›
The 2/3/4 rule: According to this rule, applicants are limited to two new cards in a 30-day period, three new cards in a 12-month period and four new cards in a 24-month period. The six-month or one-year rule: Some issuers may only let borrowers open a new credit card account once every six months or once a year.
Will banks reduce credit card debt? ›
Debt consolidation
The bank will pay off your credit cards, and then you'll repay the bank in monthly installments. This rolls your multiple credit card payments into a single payment that is usually much lower (and often with interest rates significantly lower than your credit cards).
What are the three C's of credit cards? ›
The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.
What are 5 disadvantages of a credit card? ›
Disadvantages of Credit Cards
- Minimum due trap. The biggest con of a credit card is the minimum due amount that is displayed at the top of a bill statement. ...
- Hidden costs. ...
- Easy to overuse. ...
- High interest rate. ...
- Credit card fraud.
Credit Cards make it easy to overspend, and if you're not careful, you can quickly accumulate debt you may struggle to repay. This can lead to high-interest rates, late fees, and damage to your credit score.
How bad is credit card debt in America? ›
Americans' total credit card balance is $1.115 trillion in the first quarter of 2024, according to the latest consumer debt data from the Federal Reserve Bank of New York. That's down from $1.129 trillion in the fourth quarter of 2023, which remains the highest balance since the New York Fed began tracking in 1999.
Why do Americans struggle with debt? ›
Inflation and higher interest rates are contributing to rising credit card debt, resulting in more Americans struggling to pay down their credit card balances, according to Bankrate's senior industry analyst Ted Rossman.
How many people have $50,000 in credit card debt? ›
Running up $50,000 in credit card debt is not impossible. About two million Americans do it every year. Paying off that bill?
What generation has the lower education debt? ›
By 2030, Millennials (born between 1981 to 1996) are expected to have the most total debt at an average of $228,891 per person. Generation X (born between 1965 and 1980) holds the most student debt at an average of $45,796, while Gen Z (born between 1997 and 2012) has the lowest with $20,468.
Which generation has the most student debt? ›
While Gen X may not have taken out as much student debt as Gen Zer's have had to, they're the generation shouldering most of the nation's outstanding debt. As of 2021, the average Gen Xer had $46,317 in student loan debt. 1.4 million Gen Xers between ages 35 and 49 carry over $500 billion in student debt.
Does Gen Z drink less than other generations? ›
Gen Z is reported to drink less alcohol compared to Millennials and previous generations. A World Finance report shows that Gen Zers drink on average 20 percent less than millennials, who also drink less than older generations.
Why Gen Z is a better generation? ›
They are constantly connected, always on the go, and extremely tech-savvy. As a result, Gen Z is often lauded for being entrepreneurial, innovative, and open-minded. It's important to recognize the strengths of Gen Z because this generation is quickly becoming the largest demographic in the workforce.
