Though the holidays have ended, some consumers may still be feeling the "squeeze" from their purchases. According to new data from Experian the average person still owed more than $4,200 in bankcard debt at the end of 2010.
The data also shows that the average number of bankcards that consumers hold has dropped (nearly 23% since 2007) to 1.97 cards. However, this has contributed to cardholders utilizing, on average, more than 30% of their total available bank card balance, which is a nearly 10% jump since 2007. Carrying high balances impacts utilization rates which play a significant role in how credit scores are calculated. For example, utilization rates account for approximately 23% of a consumer's VantageScore.
"We want consumers to understand that overspending at the holidays or at any other time of year can often have broader implications to their overall fiscal fitness," said Maxine Sweet, vice president of public education at Experian, in a statement. "By carrying over credit card balances and utilizing a significant portion of their available balance, they can potentially negatively affect their credit scores, which can in turn, hurt them when it comes to applying for other types of credit down the line including mortgages and car loans. It's important for consumers to get that debt under control before it has a lasting impact on their credit scores."
Experian looked at cities across the United States and identified the 25 with the most bankcard debt in December 2010. San Antonio, Texas, topped the list with the highest average balance of $5,177.
Key findings include:
- San Antonio, Texas – average bankcard balance: $5,177 (20.9% higher than the national average)– Bankcard balance average has stayed somewhat steady since 2007, despite an 8 percent decrease in the national average.
- Jacksonville, Fla. – average bankcard balance: $5,115 (19.4% higher than the national average)- Jacksonville is also one of the 25 cities with the lowest VantageScore.
- Atlanta, Ga. – average bankcard balance: $4,960 (15.8% higher than the national average) – Despite overall decreases in bankcard balances (decrease of 3.44 percent from 2009) overall utilization of available credit is up (increase of nearly 6 percent from 2007) due to the decrease in the number of bank cards.
- Honolulu, Hawaii – average bankcard balance: $4,939 (15.3% higher than the national average) – Honolulu was one of the few cities in the top 25 that had the highest bankcard balances with an increase in the number of bank cards from 2009 to 2010.
- Dallas-Fort Worth - average bankcard balance: $4,936 (15.2% higher than the national average) – Dallas is one of the cities with the lowest VantageScore in the country.
Sweet added, "A bit of good news is that Americans did reduce their December credit card debt by more than 4 percent when compared to 2009 data."
To help consumers avoid any future holiday debt "hangovers" and take proactive steps to improve their credit and use it wisely, Sweet offers the following tips:
1. Assess your overall financial situation. Before you do anything else, it is important to examine your entire financial situation, including your monthly budget and your short- and long-term financial goals.
2. Select a payment strategy that works for you. Consider paying down the credit cards with the highest interest rates first. If that seems too daunting, try paying down your smallest balance first so you can see your progress toward eliminating your bills right away. Pay more than the minimum payments, if you can, but most importantly, always pay on time. If you need additional help managing your debt, you might consider reaching out to an accredited credit counselor such as a member of the National Foundation for Credit Counseling.
3. Use tax returns and holiday bonuses wisely. Holiday bonuses and tax returns are two larger lump sums of money that can be used to make a dent in debt, if used wisely. Make sure you are taking full advantage of extra income by putting it toward credit card debt or using it to save for next year's holiday expenses.
4. Know what you want to buy and the best time to buy it. Write down all of the people you need to buy for and start listing ideas for potential gifts. Have an idea of what you want to buy well in advance of the holidays and keep an eye out for those gifts over the course of the year
Check your credit score so you have a benchmark for improvement. Check your credit report and purchase a credit score so you understand the baseline of where you stand and how your credit may have been impacted by your holiday spending. During times of high activity on your credit accounts, it is also especially important to make sure that your credit report is accurate. Then, after you have had time to achieve your goals and begin paying off your debt, get another score to see where you fall in the range of risk that has changed once you have paid down your debt.