Consumer spending is the primary driver of growth in the U.S., accounting for roughly two-thirds of the economy. And it's remained incredibly strong over the past few years, largely thanks to Americans' willingness to keep spending.
The downside is increasing levels of household debt, as many people have been spending more than they're earning.
Total household debt topped $14.15 trillion in the final quarter of 2019, an increase of 1.4%, according to a recent report from the New York Fed. A large part of that debt is credit card debt, which increased by $46 billion to a record total of $930 billion. Worse, that rising debt load came with a notable increase in delinquencies, or payments that are late by more than 90 days, among younger borrowers.
The average balance-carrying household owes $9,333, according to Value Penguin.
"One reason [credit card debt] is so high is because credit cards are so easy to use. It's like there's money growing on a tree," says Niv Persaud, a certified financial planner and managing director at Georgia-based Transition Planning & Guidance. "The economy has been good, and people have short-term memories. We don't think about what's happening next."
Borrowers with high credit card balances can put themselves in a financial vice: They're paying more every month to service that debt, putting a squeeze on their budgets. That can make it harder to save, invest, and perhaps even make ends meet on a consistent basis. About a third of Americans routinely run out of cash before payday, according to a new survey from Salary Finance.
Half of Americans (52%) are confident that they'll make a significant dent in their credit card debt during 2020, according to a recent survey from CreditCards.com. Here are three ways to get started:
Video by Ian Wolsten
It's also important to take a broader look at your finances to make sure your spending habits don't lead to you racking up new balances as you pay down old ones. "Pull out your statements and list every expense," says Steve Sexton, a financial professional and CEO of California-based financial firm Sexton Advisory Group.
Creating a budget shows you how you're spending your money, and where you might cut back, say, by cutting unused subscriptions or trimming your entertainment expenses. Not only could that give you extra money to pay down debt, but it could also let you get ahead on bigger financial goals like buying a home or saving for retirement.
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