The majority of US consumers are drawn to credit cards for their convenience, credit building, or rewards with every “intention” to pay their balance in full every month, according to an update from LendingClub.
But “life happens” and nearly half of cardholders end up carrying a balance, today “paying historically high interest rates on a loan they have trouble understanding and that they never intended to take.” That’s according to research from LendingClub Corporation (NYSE: LC), the parent company of LendingClub Bank, America’s digital marketplace bank, which finds that unintentional credit card debt is throttling Americans’ finances, putting them on “a hamster wheel of debt that is leading to financial instability and harming their mental well-being.”
Many consumers view credit cards as a convenience, credit builder, or source of rewards – not a loan.
As a result, they don’t always shop around for the “lowest interest rates, track rate changes, or check the fine print.”
Nearly half of consumers are completely unaware of the rate they’re “paying on their credit card.”
And around 23.9% of consumers say they “use credit cards as an alternative to cash, with 8.5% saying credit cards are a more secure alternative to debit cards.”
And more than 20% cite credit building as the main “reason they use a credit card, and another 18.7% say it’s the ability to earn rewards or cash back that’s most appealing.”
But during the last year, credit card usage has surged, with “nearly half of Americans (47.3%) accumulating some amount of revolving credit card debt.”
Four in 10 Americans are concerned about missing a payment over the next six months, hindering their ability to “achieve their financial goals.”
Inflation, with the majority of respondents “attributing their increased spend to the rising cost of living, and 42.3% citing food and groceries as their largest category of increased credit card spending.”
Although most US consumers (65.9%) believe they could “manage their finances without a credit card, 60.3% use their credit cards at least once a week either as a convenience in an increasingly cashless society or as a way to bridge cashflow gaps.”
That dependence on credit cards as a financial tool can “lead to serious consequences for financial health if cardholders can’t pay their balance in full each month.”
More than a quarter of Americans now report “20-40% of their paycheck is dedicated to paying down their credit card debt – a debt burden that is hard to break free from.”
Nearly 75% of Americans think about their debt frequently – “ranging from several times a month to multiple times a day.”
Four in 10 Americans report feeling “anxious, overwhelmed, frustrated, ashamed, angry, scared, embarrassed, and even hopeless about their debt.”
Managing credit card debt can be challenging, with “multiple balances, different and fluctuating interest rates, varying minimum payments, and due dates spread throughout the month across numerous cards.”
Despite their best intentions, Americans have “difficulty keeping it all straight.”
More than 40% of Americans manage their credit card payments “on a weekly or even daily basis.”
Although other types of loans are set to autopay, 68.4% of Americans manually pay their credit cards “each month to control how much to pay, to whom, and when.”
Even though they spend a lot of time actively “managing their credit card debt, Americans are largely flying blind.”
Nearly a quarter (22%) indicate they lack effective tools for monitoring and managing credit card debt, “while close to 30% (28.7%) turn to family, friends, peers, or social media influencers for advice. Over half (50.6%) of respondents resort to Do-It-Yourself (DIY) solutions like self-guided repayment strategies (debt snowball and debt avalanche, for example) or use spreadsheets or other manual methods to track balances and payments.”
And 16.8% have explored transferring balances to “a card with a lower rate, although almost 40% (39.5%) don’t know that such transfers come with a 3-5% fee.”
LendingClub members consolidate variable high-interest rate credit card debt into a fixed lower-rate loan, “providing a clear path to paying off that debt with realized savings.”
83% surveyed say that the financial products they “use with LendingClub help them keep more of what they earn. ”
Survey Methodology
Propeller Insights conducted a national online survey of 1,013 consumers from May 13 to May 21 to “gauge the trends and Americans’ opinions on personal finance.”
Respondents opted into an online database, and “from there, were surveyed based on demographics.”
To confirm qualifications, respondents were asked to verify their information in the survey, “self-identifying qualifications, with the maximum margin of sampling error being +/- 3 percentage points and a 95% confidence level”.