Jan 14, 2025
Credit cards are a valuable and useful financial tool, until they aren't.
Credit card debt has reached record levels in recent months, perhaps due to inflation and other ways people feel stretched financially.
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And, according to data gathered by BankRegData and reported in a Financial Times article, $46 billion worth of credit card debt were considered write-offs by lenders in the first nine months of 2024.
A creditor considers a debt a write-off when the borrower has defaulted on the loan, and is most likely unable or unwilling to pay back what’s owed.
According to the same Financial Times article, this amount of credit card defaults is at its highest level since the recession that began in 2008.
What does this mean for credit card debt levels in 2025, and how does it affect your finances?
What this means for credit card balances in 2025
We may see more people stretched thin financially in 2025, leading many to continue relying on credit card debt and finding it hard to pay off that debt.
Although inflation has cooled somewhat in the past several years, it still remains higher than the Federal Reserve’s goal of 2%. Even if inflation continues to go down, overall costs remain higher than what many families can afford.
According to data from the U.S. Bureau of Labor Statistics (BLS) 2023 Consumer Expenditure Survey, the average household spent $77,280 on various necessary expenses (food, housing and transportation), which was up 5.9% from the previous year. When you consider the median income is $60,580 according to recent BLS data, it’s clear that middle-class households are, to say the least, stretched.
Data from the Federal Reserve also shows that credit card balances climbed to $1.17 trillion in Q3 2024, up $24 billion from the second quarter.
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What’s more, there have been rising rates of rejections for loan applications, including credit cards. An October 2024 Credit Access Survey by the Federal Reserve Bank of New York revealed that the rate of credit card applications increased by 28.6% in 2024, with a rejection rate of 22.2%.
While none of this directly spells trouble, these statistics may point to the financial pressures many Americans face. Unfortunately, even one late payment could set you further behind, with added late payment fees and interest charges.
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How you can protect yourself
Even though you may be in a good spot financially now, it doesn’t hurt to protect yourself in case you won’t be later on.
First, take a look at your budget and review your credit card transactions. See if there are any areas where you can cut back or eliminate. For example, if you have some subscription services you no longer need, taking a few minutes to cancel them may save you hundreds of dollars over the year.
Paying more than the minimum balance due on your credit cards will also help, especially as it means you could pay less in interest overall. As you pay your balance down, be mindful of additional purchases, so you can lower the amount you owe each month.
Debt consolidation is also a common way for many people to lower their monthly payments. It’s where you take out a loan and use the proceeds to pay off your credit card balances, with the loan ideally being at a lower interest rate.
Conducting credit balance transfers to a card that has a lower APR (and may also offer a 0% introductory rate) could mean a lower monthly payment. Before doing so, see if there is a fee for doing a transfer and whether it’s worth it. Take the time to read the fine print so that you know how long you have to pay off the balance before the regular rate kicks in.
If you’ve slashed your budget and find that you want some more breathing room, increasing your income may be the way to go. Asking for a raise, switching jobs for a higher salary or even taking on side gigs are all feasible ways you can earn more.
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Sarah Li-Cain, AFC is a finance and small business writer with over a decade of experience.
