Americans added a little more to their credit card balances, but they are paying their bills on time more often.
TransUnion reported Tuesday that average credit card debt per borrower inched up less than a percent to $4,971 in the second quarter from $4,962. That's also up nearly 6 percent from the same period a year ago.
Despite the increase, delinquencies actually fell to 0.63 percent the second quarter from 0.73 percent in the first three months of the year. The current level is slightly higher than the record low of 0.60 percent set in the second quarter of 2011.
TransUnion's Ezra Becker, vice president of research and consulting, calls the performance "a positive situation" because it partly reflects "the ongoing prioritization of card payments among consumers."
It's great that delinquencies remain at record lows, for credit scoring purposes. But let's be honest. No one should carry any credit card debt if they can help it. That's just throwing away hard-earned money.
Let's say for argument's sake that you have the average credit card debt of $4,962 and your interest rate is 14.5 percent -- close to Bankrate's weekly average for variable-rate cards. If you want to pay that balance off in a year, you need to come up with almost $450 a month to throw at the balance. Even then, you end up paying almost $400 in interest. That's the same as losing your wallet with four Benjamins. Hurts, doesn't it?
If you want to take three years to pay off the debt, you need to come up with $170 each month. But get ready to lose $1,187 to interest. And if you stick with the minimum payment only (calculated as interest plus 1 percent of the balance), it'll take you 22 years to pay off $4,962 and you'll pay nearly $5,500 in interest, more than twice the original balance. Ouch.
The lesson here is this: While it's great that Americans continue to get their credit card payments in on time, those payments should be covering the entire monthly balance. Carrying credit card debt is just giving away money to issuers.
Do you carry a balance? How do you budget your credit card usage every month? Tell me your strategy.
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