Credit card debt is extremely high – with Americans owing $1.14 trillion on their credit cards collectively [Source: Federal Reserve Bank of New York]. While credit cards offer convenience, rewards, and a line of credit for emergencies, they can lead to mounting debt if not used wisely. 

Today, the average credit card balance is around $6,328 [Source: TransUnion], a number that is up 4.8% year over year.

What does this mean for you as a consumer, and how can you avoid credit card debt – or mitigate the debt you might have already accrued? Let’s talk about it. 

Covid-19 and Young Adults

Credit card debt is not spread evenly across all ages. Young adults, who are more often renters with less of a financial cushion are experiencing more credit card debt and financial instability. Credit card delinquency rates are also higher for this demographic – specifically those from ages 18-39, who were hit harder by the pandemic. 

In the last year, about 9.1% of credit card balance transitioned into delinquency [Source: The New York Fed]. 

During the pandemic 2020-2021, card card balances briefly fell due to government-supplied stimulus checks and fewer spending opportunities. But since 2021, credit card balances have risen 48% due to increased spending, high inflation and high interest rates.

The Hidden Costs of Credit Card Debt 

Credit cards are pretty much the most expensive way to borrow money these days. The average credit card charges more than 20%, due in part to high interest rates. 

Despite this pricey fee, 57% of modern consumers rely on credit cards to make ends meet right now, while 36% say it’s difficult to pay recurring debts on time [Source: Achieve].

So, how is this reliance on credit cards impacting consumers?

• Fees: late payment fees, annual fees, and over-the-limit fees add up and increase overall debt.
• High Interest Rates: this interest rate depends on your credit score and card type, but can quickly accumulate and increase debt significantly. 
• Credit Score: high levels of debt can negatively impact credit score, which can lead to higher interest rates on loans and mortgages long term.
• Stress: financial stress is real – and can take a toll on your family, relationships, and mental and physical health. 

How to Avoid Credit Card Debt

Credit card debt can be a significant burden, but with careful planning and disciplined financial habits, it can be avoided. If you are going to keep using a credit card, here’s some of our top suggestions.

• Create a Budget: establishing a monthly budget to track income and expenses will help you understand where your money is going. 
• Set up Automatic Payments: enrolling in automatic payments help reduce missed payments and avoid late fees that impact credit score.
• Necessities Only: use your credit card for necessities only – and use a debit card for non-essential items or impulse purchases. 

All that said, credit cards are not the only option. Debit cards, specifically prepaid debit cards, can be an amazing tool in your financial toolbox. Here’s how! 

The Karma Wallet Card for Budgeting 

A prepaid reloadable debit card like the Karma Wallet Card can be an effective budgeting tool for managing your finances. Unlike credit cards, which allow you to borrow money, prepaid debit cards let you spend only what you load onto them.

• Spending Limits: Prepaid debit cards inherently limit your spending to the amount you load onto them. This makes it easier to control your spending because you can’t exceed the balance on the card. 
• Tracking Spending: The Karma Wallet Card comes with a money management app that allows you to track your spending in real-time, giving you detailed reports and insights into where your money is going. 
• Cashback Savings: Instead of relying on credit card rewards, the Karma Wallet Card enables you to earn up to $300 cashback a year (if you spend on average $500 a month!) Explore 1,000+ vendors offering up to 20% cashback in the app. 
• Easy Reloading: direct deposit functionality allows you to transfer funds seamlessly onto the card. You can reload the card with a budgeted amount at regular intervals to manage your money effectively. 

By setting spending limits, tracking expenses, and avoiding debt, you can achieve greater financial discipline and peace of mind. 

Ready to get your Karma Wallet Card? Apply here!