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Americans owe more than $930B in credit debt

Americans, in good times and bad, love debt — especially the plastic kind, despite its steep price.

Those are some of the conclusions of NerdWallet’s latest debt report, which show mortgage and credit card debt levels rising.

“People have been feeling optimistic and, when they do, it is tempting to use credit cards,” said Kimberly Palmer, a NerdWallet card analyst.

Many US consumers have not resisted temptation. Debt levels have been rising for years. US households now owe $13.15 trillion in total debt, about $931 billion of it card debt, according to NerdWallet’s 2017 American Household Credit Card Debt Study along with its newly issued quarterly figures.

The average household card debt is close to $16,000. That comes with hefty interest bills.

“Credit card debt is one of the most expensive types of debt, and consumers who carry it pay an average of $1,292 per year in interest on it, assuming an average annual percentage rate of 18.76 percent,” the 2017 report said.

But since last year, the average household card interest bill has increased, NerdWallet said. It is now more than $1,300 a year because of the recent Federal Reserve interest rate hike. And another hike is expected this year.

The Fed also said more Americans have been carrying card debt over the past few years.

In its latest Survey of Consumer Finances, The Fed said households with card debt from month to month has increased to 43.9 percent from 38.1 percent at the end of 2013.

The average credit card household debt is approaching the historic high of just over $1 trillion set before the last recession, NerdWallet said, noting it could reach it next year. That is unfortunate, Palmer said.

“Turning to credit card debt is one of the worst options when you’re trying to manage money,” she said.

Why are Americans charging more?

“About 2 in 5 Americans who have ever had credit card debt (41 percent) reported that spending more than they could afford on unnecessary purchases contributed” to the problem, the 2017 study said. The next biggest use is paying medical bills.

The increased use of cards is widespread. NerdWallet said the potential abuse of card debt affects both independent contractors as well as employees, the rich as well as those with modest incomes.

“We don’t see this problem as much since we primarily deal with high net worth individuals, but we do see it. Very often clients will say, ‘Oh, I have $35,000 in credit card debt at 9 to 18 percent,’ ” said Robert Karn, a certified financial planner in Farmington, Conn. “I immediately ask why.”

He said consumers need a plan to prevent excessive debt.

Just as credit card companies aggressively market products to the average American, so the average American must have an aggressive plan to escape card debt, advisers say.

“People struggle to get out of debt because they don’t have a wise and coherent strategy to pay down debt,” said adviser Garrett Gunderson, founder of Wealth Factory in Salt Lake City.

He advocates restructuring loans by “rolling short-term high-interest into long-term low-interest loans.”

Karn said clients in card hell must track spending.

“I tell clients,” he added, “you’re paying 9 to 18 percent on these cards and the bank is only paying you 1 percent on your savings. We must do something about this.”

For those who fail to take card debt seriously, Karn warned, there will be pain.

“There’s no way to get around it,” Karn added. “You must have spending discipline.”