The Alarming Increase in Credit Card Debt and Fraud
Tricia has nearly two decades of experience in commercial and federal government lending. Her expertise is highlighted throughout small business loan content on Fit Small Business.
Jordan is a financial analyst with over two years of experience in the mortgage industry. He brings his expertise to Fit Small Business’s credit card and bank account content.
Credit card debt and card fraud are complex issues that continue to become more common. Whether we evaluate the past five years or even look at projections, we see an alarming increase in debt and fraud both in the United States and worldwide. Because this is a prevalent issue in society, preventive measures are encouraged to safeguard yourself from falling within the statistics in this report.
US Credit Card Debt Has Seen a Shocking Increase
Credit card debt statistics show that US credit card debt is on the rise, and it has been for the past handful of years. For instance, since 2015, card debt has increased by an average of $48.75 billion each year. This statistic is evidence that US card debt is on an upward trend and doesn’t give too much hope for a drastic decrease in debt anytime soon.
The looming credit card debt within the US is usually a result of cardholders who miss payments, can’t repay their balances, or deal with a ton of interest charges that send them spiraling off in a seemingly endless debt trap. Because that’s never a fun place to be in, it’s crucial for cardholders to make timely payments and use their card responsibly to avoid falling into this debt spiral.
US Credit Card Debt Through the Years
While looking at the average increase in card debt per year gives a good bird’s-eye view, it’s eye-opening to understand how the amount of debt has changed during the past five years. For instance, in 2015, card debt was $898.7 billion compared to $1.09 trillion in 2019, which is a 21.28% increase. For a closer look at US credit card debt, here is the amount of debt per year since 2015:
From 2015 to 2019, credit card debt increased by an average of 4.95% every year. The largest increase for one year was 6.85%, between 2015 and 2016. The smallest increase was 2.94%, between 2017 and 2018. These statistics and calculations show that credit card debt has historically been increasing.
In the News
Although debt has been increasing historically, a recent report from the Federal Reserve Bank of New York shows that credit card balances have declined during COVID-19. For example, in the second quarter (Q2) of 2019, there was an $82 billion decline in card balances. Second quarter declines had previously only been seen during the Great Recession.
US Credit Card Debt vs Total Consumer Debt
Unfortunately, credit card debt isn’t the only debt-related problem in the US. Americans also deal with other debt, including loans and mortgages. The total consumer debt in the US, which includes credit cards, auto and student loans, and mortgages, hit $14.15 trillion in 2019. With revolving debt amounting to $1.09 trillion and nonrevolving debt at $3.09 trillion, that means housing debt makes up $9.97 trillion of consumer debt. Furthermore, here’s a look at how consumer debt has changed during the past five years:
- 2015: $12.12 trillion
- 2016: $12.57 trillion
- 2017: $13.15 trillion
- 2018: $13.55 trillion
- 2019: $14.15 trillion
These numbers are truly staggering. On average, there was a 3.90% increase in consumer debt every year. That’s less than the 4.95% average increase in card debt we saw between the same time period. Regardless, both card and consumer debt are continually on the rise in the US.
Revolving debt is debt related to revolving credit, which is a type of credit that you can use repeatedly as you repay your balance, such as a credit card. Meanwhile, nonrevolving debt relates to nonrevolving credit that can’t be reused as you repay, including auto and student loans.
Each American Cardholder Saw an Increase in Their Card Debt
Not only is overall card debt on the rise in the US, but debt for each cardholder is also on the rise. In 2019, the average card debt for each US cardholder was $6,194. Compare that to 2018, and you’ll see an increase of $154. Although not a massive change, this 2.55% increase in debt per cardholder is another indicator of the growing average credit card debt in the US.
US cardholders who want to avoid watching their credit card balances increase year-over-year should focus on paying down their balances monthly, setting up automatic payments, and using a budget. While it may seem like credit cards give you access to free money, that is never the case. If you can’t repay what you owe, you may find yourself drowning in interest charges.
Surprising Insights on Credit Card Ownership in the US
Ready for some eye-opening card ownership statistics? Here’s what Experian reports:
- Americans have a total of 484 million credit cards.
- On average, Americans hold four credit cards with an average account history of seven years and two months.
- In 2019, Americans opened 20.8 million new accounts.
Now, although this isn’t directly related to the alarming increase in US card debt, here’s what it does show: Americans are creating more opportunities for card debt because of the number of cards they own. More credit cards mean more credit available, which means more potential debt.
Cardholders and Their Looming Credit Card Debt
As mentioned, more credit cards mean more possibilities for unpaid balances. There’s even evidence that shows there are more US cardholders with card debt than there are without. For example, approximately 55% of US cardholders have card debt. This means that for every 20 cardholders, 11 cardholders have unpaid balances.
Carrying a credit card balance can easily turn into a massive expense on its own because of high ongoing annual percentage rates (APRs). When cardholders carry a balance, issuers charge interest monthly, which racks up quickly. For example, say you have a balance of $6,194. If your card charges a 17% ongoing APR and you pay the 3% minimum payment each month (approximately $186), it would take you 46 months to pay off your balance, and you’d pay $2,245 in interest.
Cardholders’ Quick Guide to Escaping Credit Card Debt
Credit card debt happens, even to those who may think they have a good grip on their finances. A few unexpected expenses or missed payments can start you down the path of racking up debt over time. However, while it can happen to anyone, card users can also pay off credit card debt with a few responsible tactics, which are outlined below:
- Debt snowball method: This method is one of the quickest ways to pay off your debt. You start by paying off the card with the least amount of debt while making the minimum payments on the others. Once you pay off your smallest balance, you move to the next smallest and so on until all your card debt is repaid.
- Debt avalanche method: With this payoff method, instead of focusing on the smallest balance first, you focus on paying off the card with the highest APR while making the minimum payment on the others. Once the card with the highest APR is repaid, you move onto the card with the next highest.
- Use a balance transfer card: Some issuers offer balance transfers credit cards, which typically charge no interest on balance transfers for up to 21 months. This means you can transfer all of your balances to one card to help pay down all that you owe while avoiding interest. Business owners can also use business balance transfer credit cards.
Cardholders that realize they’re in credit card debt should consider setting their cards off to the side. It’s difficult to pay down your accrued card debt while actively adding to the balance owed.
Card Fraud Losses Are on an Upward Trend in the US
As much as we wish credit card fraud to disappear entirely, unfortunately, that’s likely never going to happen. When we look at current credit card fraud statistics, we see the following:
- Global card fraud losses amounted to $27.85 billion in 2018
- Card fraud losses worldwide are projected to hit $35.67 billion by 2023. That’s a whopping increase of $7.82 billion since 2018.
If you experience credit card fraud, don’t be quick to think you did something wrong or made yourself vulnerable. It’s hard to avoid―even experts like myself who have a suite of credit cards experience card fraud. What matters is how you respond, so be sure to call your issuer immediately to report the fraud and lock your card.
Credit Card Fraud Is the Most Common Type of Identity Theft
Not only is credit card fraud a rising issue around the world, but so is identity theft. Identity theft is when someone steals your identity and uses it for their own personal gain, such as opening a new account. While there are several types of identity theft, such as card fraud, loan or lease fraud, or bank fraud, credit card fraud is the most common type, with 271,823 reported cases in 2019.
Percentage Global Fraud Losses Around the World
As mentioned, credit card fraud is not just a problem in the US. Unfortunately, we see it happening all around the world. For example:
- In 2010, 46.9% of fraud losses were right here in the US, and 53.1% were outside of the US.
- In 2018, 34% of losses were in the US, and 66% were outside. While this is a 12.9% decrease in losses within the US compared to 2010, it’s also a 12.9% increase in losses outside the US.
Fraud losses inside and outside the US tend to fluctuate every year. However, historically, fraud losses within the US have been less than outside. This isn’t necessarily a positive, though, because a lower percentage of losses in one region means a higher percentage in another.
A Look Into US Card Fraud Reports Since 2015
Although it’s essential to analyze credit card fraud reports around the globe, it’s helpful to identify fraud statistics specific to the US and how they’ve changed over the course of the years. For instance, there were 74,902 reports of credit card fraud in 2015 compared to 271,823 reports in 2019, which is about a 263% increase. For a more granular perspective, here are the reports for each year.
Between 2015 to 2019, on average, there was a 41% increase in fraud reports every year. The largest increase for one year was 72.35%, between 2018 and 2019. This data helps illustrate and prove that credit card fraud is absolutely on the rise.
In the News
Not only has credit card fraud been on the rise, but recent reports from the Federal Trade Commission show that from January 1 to September 30, 2020, there have been 213,384 COVID-19-related reports about fraud, identity theft, and other consumer protection problems.
New Account Fraud Is More Common Than Existing Account Fraud
There are two types of credit card fraud: new account fraud and existing account fraud. New account fraud, or account opening fraud, is the more common of the two and has seen an 88% increase in 2019 compared to the prior year. When a fraudster steals your identity and opens a new account under your name, their mischievous plan typically lasts up to 90 days, where they max out any credit limits.
Existing account fraud, on the other hand, happens when a fraudster takes over an existing account. This type of fraud has seen a 4% decrease in 2019 compared to the previous year, meaning that new account fraud is an easier win for fraudsters. Cardholders who experience either type of fraud should contact their bank or issuer immediately.
Most People Are Unaware of New Account Fraud
Although new account fraud is common, most people are unaware of it. A report put together by the Identity Theft Resource Center (ITRC) shows that most respondents had never heard of account fraud; however, they were concerned about this type of fraud happening to them. Here’s a snapshot of that survey from the ITRC.
The majority of concerned participants were worried this fraud would hurt their credit or take a long time to correct the problem. However, those concerns are not the only repercussions of new account fraud. This type of fraud can also freeze access to your funds, make you susceptible to other fraud, and require you to get new cards with new information.
Banks Strive to Safeguard Against New Account Fraud
Now you may be wondering, how do people prevent themselves from new account fraud? Well, most of the time, that protection lives in the hands of the banks. When someone opens a new account, it’s the bank’s responsibility to verify the identity of the customer and recognize potential fraudsters.
The Association of Certified Fraud Examiners (ACFE) outlines 15 red flags banks and issuers should look out for when someone is opening a new account. Some of these warning signs include:
- Applicant’s name doesn’t match the Social Security number information returned by the credit bureau
- Primary identification cards issued within the previous 60 days, unless the applicant has recently moved from out of state
- The address on the ID card is different than the home address provided
- Applicant is older than 25 but has no prior banking experience
Key Takeaways
- Since 2015, US credit card debt has increased by an average of $48.75 billion each year
- In 2019, the average credit card debt for each American cardholder was $6,194
- The average credit card debt for each American cardholder increased by $154 between 2018 and 2019
- Credit card balances during the COVID-19 pandemic have declined
- Total US consumer debt reached $14.15 trillion in 2019
- Worldwide card fraud losses hit $27.85 billion in 2018
- Credit card fraud is the most common type of identity theft
- Fraud losses are projected to reach $35.67 billion in the next three years
- In 2010, 46.9% of fraud losses happened within the US
- Credit card fraud reports increased by 263% between 2015 and 2019.
- New account fraud increased by 88% in 2019
Bottom Line
Cardholders never want to find themselves dealing with credit card debt or fraud. However, it’s unfortunately on the rise, so there’s a possibility they’ll experience one or the other. If someone experiences debt or fraud, they need to take action immediately, such as paying off their balances as quickly as possible or contacting their issuer to report the fraud.
