Debt is fueling Americans' summer fun. Many will be paying it off for years.

By Venessa Wong

Carrying credit-card debt has gotten more expensive as interest rates have soared

Many Americans are willing to take on debt to enjoy the summer but will end up carrying those balances with them for months - even years, in some cases - as they rack up interest at near record-high rates.

In fact, 46% of people are still paying off their credit-card debt from last summer, WalletHub found in a recent survey.

While it is not uncommon for people to gradually pay down their balances, today's high interest rates have made it far more expensive to carry credit-card debt than it was before the pandemic. The average credit-card interest rate was 21.51% in May, up from 20.84% the year before, according to data from the Federal Reserve. In May 2020, the average rate was 14.52%.

About half of cardholders pay off their balance in full every month, while others are in debt for many years, Bankrate analyst Ted Rossman told MarketWatch. Among credit-card users who carry a balance, more than half have that debt for more than a year: In a Bankrate survey, 19% said they had it for one to two years, 11% for two to three years, 11% for three to five years and 17% for five years or more.

At today's interest rates, someone who only makes minimum payments toward the average $6,218 credit-card balance will have that debt for 18 years and pay about $9,300 in interest, according to Bankrate. "Of course, the advice is to pay off your credit card debt ASAP," Rossman said, adding: "That may be easier said than done."

Even as many cardholders are still carrying last summer's debt well into 2024, a sizable share of Americans - especially young people - remain willing to take on debt this summer and put their financial goals on hold to treat themselves, according to an Intuit (INTU) Credit Karma report. A survey by the company last month found that 20% of Gen Z members and 24% of millennials anticipate taking on debt this summer, with 11% of Gen Z members and 8% of millennials expecting their summer debt loads to exceed $4,000.

"A summer debt hangover may be in the cards," the report warned.

Overall, 36% of respondents said they were willing to take on debt for a summer vacation this year, with travelers planning to use credit cards, buy-now-pay-later services, personal loans and loans from family or friends to cover the costs, a separate Bankrate survey found.

To mitigate costs this summer, budget-conscious travelers are looking for deals, and many are taking road trips instead of flying this year to save money, according to research by Deloitte.

Middle-income households are the most likely to have credit-card debt, and not just as a result of spending on planned leisure activities, according to the Federal Reserve Bank of St. Louis. "They may have relatively easy access to credit cards but could need to go into debt to cover emergency expenses," Fed researchers Yu-Ting Chiang and Mick Dueholm wrote.

Credit-card debt accounts for only about 2% of overall household debt, but "its interest rates tend to be higher than those of other forms of consumer debt, making it relatively expensive," the Fed researchers noted.

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-Venessa Wong

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07-10-24 1041ET

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