Why rising credit card debt points to a bigger debt problem

While credit cards account for only six percent of American debt, they could point to a larger debt problem.

Credit card debt accounts for a relatively small percentage of American consumers' total debt load. Most people, after all, carry much more debt in the form of mortgages, student loans, and auto loans than they carry on their credit cards. However, as CNBC reports, the rising credit card debt levels may be pointing to a much bigger debt problem than credit cards alone. That's because most Americans are getting into credit card debt not in order to indulge in frivolous expenses like a night out on the town, but in order to pay for basic expenses, like food, medical bills, and car repairs.

Rising credit card debt

The average American household is carrying $15,654 in credit card debt, according to CNN. That's a substantial amount, although overall credit card debt represents only six percent of total American household debt. Mortgages, on the other hand, represent 67 percent of household debt, student loans account for 10 percent, and auto loans for nine percent.

However, there are reasons to be worried about the rising credit card debt being carried by Americans. For one, credit cards are far more common than other types of debt, meaning that problems with credit card debt are more likely to be more widespread. Furthermore, interest rates are starting to go up again, which will put a squeeze on those who are already struggling to keep up with payments. Currently, the average household pays about $904 per year in interest alone on their credit cards (assuming they pay an interest rate of 14.87%). That is expected to go up to $919 next year after the Federal Reserve's interest hike kicks in, and it could be even higher given that further interest rate hikes are expected in 2018.

Struggling to get by

What is most alarming about the rising credit card debt levels is that they are being driven not by frivolous expenses, but by basic necessities. As CNBC reports, one survey found that the most common cause of credit card debt was "making ends meet," followed by car repairs and medical bills.

Furthermore, the cost of living is increasing at a faster pace than incomes are going up. Medical expenses, for example, have gone up by 32 percent in the past decade, food and beverages by 22 percent, and housing by 20 percent. That means that Americans have less money to save up to deal with unexpected expenses (like medical debt) and must rely more and more on their credit cards just to get by.

Looking for a solution

Unfortunately, credit card debt can quickly lead to a spiral of trying to keep up with interest and minimum payments. However, when it comes to finding a long term solution to one's debt problems, making minimum payments will not be enough. One viable solution may be to consider bankruptcy. While certainly not for everyone, bankruptcy can lead to many debts being discharged, creditors being kept at bay, and a chance to rebuild one's finances. A bankruptcy attorney can show clients how bankruptcy may be able to help them get back on their feet faster.