Rising Credit Card Use in America

With the rise of online shopping, there is no doubt that Americans are using credit cards more than ever.

There’s also no doubt that a lot of them are wasting money when they pay those cards.

Are you one of them? You are if you have more than one credit card and you “balance match” your payments.

Balance matching means you make a minimum payment on credit cards, then allocate the remaining money in proportion to what you owe on those cards.

Say you owe $5,000 on one card and $2,500 on another one. After making the required minimum payment, you have $1,500 left in your budget to pay toward the cards. You put $1,000 toward the $5,000 card, and put $500 toward the $2,500.

Since Card A is twice as much as Card B, your brain tells you to split the payments along those lines.

Bad Brain!

If this happens in your house, you have been lulled into the balance match trap. Credit card companies won’t admit they set such a snare, but they sure benefit when people are caught in it.

Instead of basing your payments on balance, they should be based on interest rates. It’s called the “avalanche method,” and credit cards with the highest interest rate should get all the money.

Financial advisers who favor the “snowball” method won’t say that, but the laws of mathematics do. The snowball tells you to pay off the smaller debts first. That builds momentum to tackle debts with larger balances. The emotion-driven approach can work, but simple math shows it’s not the most efficient use of your hard-earned money.

For instance, say you have $3,000 a month to put toward your debts. You owe $10,000 on a credit card with 18.99% interest, $9,000 on a student loan with a 3% interest rate and $15,000 on a car with 4.5% interest rate.

With the avalanche method, you’d pay off the credit card first. After slaying that monster, you’d take care of the other two and have paid a total of $1,011.60 in interest over 11 months.

With the snowball method, you’d pay $1,514.97 in interest. Saving $500 in interest payments should be enough to rev up whatever emotions are needed to pay off the debt.

The problem is that many consumers aren’t using either the snowball or avalanche methods. According to a 2017 study out of England, the majority of people are balancing their payments.

England’s National Bureau of Economic Research surveyed 1.4 million credit card users and found that only 10% are devoting all their payments to the card with the highest interest rate. Most of the rest were splitting their payments evenly between cards, regardless of the interest rate.

The researchers theorize that the balances are the first things people think of when they think about credit cards. One reason is the most prominent number on you monthly bills is the balance.

It’s usually in big, bold type, as opposed to the teenie-weenie interest rate, which is where credit card companies make their money. Here’s the geeky explanation from the researchers:

“The balance-matching heuristic naturally arises from the salient display of balances on credit card statements and the broad tendency for humans (and other species) to use ‘matching’ heuristics in decision-making. Individuals might make payments in relation to [these] saliently displayed balances (instead of less saliently displayed interest rates).”

You can just picture credit card companies secretly hiring psychiatrists to sit around using terms like “heuristics” as they plot to manipulate consumer behavior.

What that basically means is consumers are being lulled into using what they think is a common-sense approach to paying off their credit cards. If one card is carrying twice the debt, it should get twice the money, right?

That’s what a lot of people’s heuristics tell them, and it’s costing them money.

The study found that the average household with two credit cards is spending $90 a year on unnecessary interest payments. Households with five cards are spending $327 extra. And the top 10% of debt-holders are throwing away more than $1,000 a year.

The study was based in England, but it notes that similar studies found the same behavior among cardholders in Mexico. It’s safe to presume the payment pattern transcends borders.

One thing that is certain is that Americans are using their credit cards more than ever. A 2017 report from The Federal Reserve found the number of credit-card payments grew 10.2% in 2016 to 37.3 billion.

The previous three years it increased 8.1%. Much of the rise can be traced to remote payments like online shopping, which represented 22.2% of all credit- and debit-card payments.

Medical expenses are also driving the trend. They have increased 34% in the past decade, and a 2017 NerdWallet analysis found that 27 million U.S. adults put medical bills on their credit cards.

That’s costing the average consumer $471 a year in interest for a year’s worth of out-of-pocket medical expenses. Considering income growth has been about 20% the past decade, it’s easy to see how millions of Americans have fallen into debt.

Keeping track of all those bills and sorting through interest rates is getting more challenging by the day. Millions of Americans have gotten help through debt management programs, where a nonprofit company consolidates their debts and works with lenders to lower interest rates.

However it’s done, consumers should remember one thing.

If they want to go crazy with credit cards, they need to use common sense when paying them off.

Right now, a lot of them are not.

Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.


  1. Gathergood, J., Mahoney, N., Stewart, N., Joerg, W. 2017, December. How Do Individuals Repay Their Debt? The Balance-Matching Heuristic. Retrieved from http://nber.org/papers/w24161
  2. N.A., 2017, December 21. Federal Reserve payments study supplement points to accelerated credit card use. Retrieved from https://www.federalreserve.gov/newsevents/pressreleases/bcreg20171221b.htm
  3. Davidson, K. 2017, December 21. Fed Study Finds Continued Growth in Credit-Card Payments. Retrieved from https://www.wsj.com/articles/fed-study-finds-continued-growth-in-credit-card-payments-1513879215?mod=trending_now_