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Racking up credit card debt

Americans have an enormous amount of credit card debt. Outstanding balances on credit cards reached a grand total of $1.12 trillion in Q1 — up 13.1% from the same period last year — according to data from FRBNY.

This is a grim milestone, as 2023 was the first time outstanding credit card balances surpassed the $1 trillion mark.

Another Bankrate survey found that 49% of credit card holders were carrying a balance from month to month in 2023. In some cases, Americans may be relying more on their credit cards as their finances are stretched thin, thanks to the higher cost of everyday expenses and higher interest rates on credit and loans.

But with credit card interest rates around the 21% mark — and in some cases as high as 30% — using a credit card to foot bills or bridge monthly shortfalls can be a losing game. If you buy groceries with a credit card and only make the minimum monthly payments, it could take years to pay off that bill, since you’ll be paying back the interest rather than the principal.

In other cases, people might be living the high life by charging everything to their credit cards (or even taking out loans), while ignoring the consequences. So, while it might look like they have a lot of disposable income, they’re racking up more and more debt, which eventually will catch up with them.

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Making lifestyle sacrifices or trade-offs

Maybe one of your friends always seems to be traveling to yet another exotic locale. It’s possible they’re living beyond their means, but they could also be making sacrifices in other areas to prioritize travel. For example, maybe they’ve chosen not to buy a car and use public transit instead, so they can funnel more of their budget toward travel.

A LendingTree study of census data found that 18.3 million homeowners in the U.S. spend more than 30% of their monthly income on housing. So if someone you know has a beautiful home, they may have chosen to make sacrifices in other areas — such as entertainment expenses or vacations — so they can afford their home.

Some people you know may be working long hours and missing time with family and friends in order to fund their lifestyle. They also might be working side hustles to bump up their disposable income.

Taking on a side hustle

Maybe you have a similar role and salary as a coworker, but they always seem to have a lot more money than you. And they might.

More than half of working Americans (54%) have a side hustle, with Gen Z leading the way (71%) followed closely by millennials (68%), according to a survey by MarketWatch Guides. But even baby boomers aren’t relying solely on their primary jobs, with 32% — nearly one-in-three — saying they’ve taken on a side hustle.

While many of those living paycheck to paycheck say they’ve taken on a side hustle to supplement their income, 48% of those who aren’t living paycheck to paycheck are still choosing to do so. That means they may have more disposable income to spend on whatever they choose, such as entertainment or travel.

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Living your best life — no one else’s

Seeing images of friends, family, and coworkers living their best life on social media isn’t a good gauge of what their life is actually like. After all, social media is a highly curated version of the life they want to present to the world.

So it doesn’t make a lot of sense to compare your life to theirs. After all, you don’t know what’s going on in their bank account. Maybe they’re putting up a facade while overspending and racking up debt, or maybe they’re making sacrifices to pursue their goals (and those may be sacrifices you’d be unwilling to make, such as spending less time with family).

Whatever the case, what you don’t want to do is live beyond your means. Many financial planners recommend the 50/30/20 rule, where you spend 50% of your after-tax income on essentials (like bills), 20% on savings and debt repayment, and 30% on everything else. If you’re doing that, you’re in better financial shape than many of your peers.

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Vawn Himmelsbach Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

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