Credit card debt is a big problem for Americans, with collective balances coming in at around $1.115 trillion in total. For the individual American household, average balances are $8,483.
That’s a lot of money to owe on a credit card, especially with average interest rates of 21.59% according to the Federal Reserve. But just how much interest would that add up to?
Here’s an estimate for how much the typical household would pay if they had a credit card with the average debt balance at the average interest rate.
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Here’s how your interest payments would add up
2024 is half over, so it’s a good time to look at how much your credit card debt may have cost you so far this year.
If you started 2024 with the average balance of $8,483 at the average 21.59% interest rate and you made minimum payments of 2% of your balance during the first six months of the year (which is a common minimum payment among card issuers), the table below shows where your money would have gone.
| Payment | Interest | Principal | Balance | |
|---|---|---|---|---|
| Month 1 | $169.66 | $152.62 | $17.04 | $8,465.96 |
| Month 2 | $169.32 | $152.32 | $17.00 | $8,448.96 |
| Month 3 | $168.98 | $152.01 | $16.97 | $8,431.99 |
| Month 4 | $168.64 | $151.71 | $16.93 | $8,415.06 |
| Month 5 | $168.30 | $151.40 | $16.90 | $8,398.16 |
| Month 6 | $167.96 | $151.10 | $16.87 | $8,381.29 |
Data source: Author’s calculations.
As you can see, the typical American with the average credit card balance and average interest rate would have paid a grand total of $911.16 in interest charges so far in 2024.
That’s almost $1,000 in money that went to the credit card company that could have been in your pocket instead.
How to deal with your credit card debt
If your credit card debt situation looks like the typical American’s, or if you owe anything on your cards at all, you can see how quickly interest charges add up. Obviously, paying such a big interest bill is a huge downside if you’re trying to get ahead financially.
Thankfully, you can reduce your interest costs by making a few strategic moves. For example, one option may be to use a balance transfer credit card.
If you can qualify for a balance transfer card with a special 0% APR promotional rate, you will usually pay a fee of around 3% to 5% of the balance you are transferring. But you won’t be charged interest for the promotional period. That period could last 12 to 15 months, or longer.
You’re typically far better off paying 3% of your balance (which would add up to $251.49 if you had the average $8,483 balance) to transfer it, rather than paying thousands in interest over the year. Of course, once the promotional rate ends, your rate will jump back up. So you’d ideally want to try to pay off as much of the card balance as you could before that happens.
Making extra payments on your debt can also bring your balance down faster, reducing the interest you owe. Try to pay as much extra as possible by making budget cuts elsewhere or sending in extra income, such as a bonus at work or money from a side gig.
Taking these steps could help you cut your interest costs, so next year you can use more of that money to do better things besides making your creditors richer.
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