Survey: Credit Card Debt and Regret Go Hand in Hand

Few people are comfortable talking about their credit card debt, so it can be surprising to learn just how common such debt is. More than half of Americans (55%) have been in credit card debt — either currently (35%) or previously (20%) — according to a new NerdWallet survey. And most of them say they regret it.

In a recent online survey of more than 2,000 U.S. adults, commissioned by NerdWallet and conducted by Harris Poll, we asked Americans about credit card debt and regret, whether they’d be willing to go into credit card debt for certain purchases and what would motivate them to pay it all off. Here’s what we found out about the psychology of debt in America:

• About 6 in 7 Americans (86%) who have or had credit card debt say they regret it. Even so, almost 3 in 4 Americans (71%) say they’d be willing to go into debt to cover certain expenses.

• More than 1 in 5 Americans with family members who have/had credit card debt (21%) say they never want to have as much credit card debt as their family.

• A quarter of Americans (25%) say they would be motivated to pay off credit card debt in order to make a large purchase, like a house or vehicle.

Americans regret credit card debt, but they’ll accept it in some cases

Most people (86%) who have or had credit card debt say they regret it. The top reasons for regretting debt are because it takes a long time to pay off (45%), they spend a lot of money on interest (43%) and it causes them unnecessary stress (39%). Although credit card debt is often assumed to be the result of careless spending, only about 1 in 4 Americans (24%) say they regret it because they spent more than they could afford on unnecessary purchases. Here’s the full breakdown of consumer regrets:

Among people who have been in credit card debt, millennials and Gen Xers are more likely than baby boomers to regret it — 91% for millennials (ages 18-34) and 89% for Gen X (ages 35-54), compared with 81% for boomers (ages 55 and up).

The generations also differ in why they regret it. Millennials are the generation least likely to cite the cost of interest (33%, compared with 46% of Gen Xers and 45% of baby boomers). But millennials are the most likely to regret the damage to their credit score (48%, compared with 30% of Gen Xers and 26% of baby boomers).

Over two-thirds of credit card holders have overspent on cards

Some studies have suggested that credit cards lead people to spend more than they would if they using cash. According to our survey, more than two-thirds of Americans (68%) who have carried a credit card say they’ve overspent on credit cards. But the reasons they overspend vary:

Gen Xers and millennials who have had a credit card are more likely to have overspent on credit cards than baby boomers (77% and 73%, compared with 58%).

Most are still willing to go into credit card debt for certain reasons

According to our survey, even though most Americans regret going into credit card debt, 71% would be willing to go into debt for certain types of expenses. Credit card debt is one of the most expensive types of debt, so naturally, we don’t recommend consumers take it on lightly. But emergencies happen, and we realize sometimes it’s unavoidable.

Around half of Americans (45%) say they would be willing to go into credit card debt to cover emergency medical expenses, and about a third (32%) would be willing to go into credit card debt to pay for necessities their income doesn’t cover, like food and utilities. These are both reasonable expenses to take on credit card debt for, even though it’s not ideal.

That said, it’s wise to avoid taking on credit card debt for nonessentials, which are best paid for upfront, with cash or out of savings. A third of Americans say they’d be willing to take on credit card debt to pay for a major life event — such as a wedding — and 16% would do so to pay for a dream vacation. Here’s the full breakdown:

Gen Xers are most likely to be willing to go into credit card debt to cover expenses (80%, compared with 72% of millennials and 62% of baby boomers) and are more likely to do so compared with boomers for most of the reasons asked about in the survey. Gen Xers and millennials are most likely to go into credit card debt to pay for a major life event (37% and 38%, vs. 25% of baby boomers) or necessities income can’t cover (41% and 42%, 19%).

NerdWallet credit card expert Kimberly Palmer says consumers should consider going into debt on credit cards only as a last resort. Optimally, you'll pay your cards in full every month and never carry debt. "Taking on credit card debt is like digging into your emergency supply kit — it's something you hope never to do,” she says.

“Because it tends to be very expensive and can be a long-term drag on your finances, it should almost always be a last resort,” Palmer says. "Instead, turn to savings to fund unexpected expenses or dream vacations — and if you don't yet have savings, make it a priority to start building them." Especially for millennials, who are getting established in careers, finding ways to create a cushion of savings can avoid the need to turn to high-interest credit card debt.

Family members with credit card debt may affect how we view it

More than 4 in 5 Americans (84%) have family members who have had credit card debt, and it may affect how they feel about debt. Among those, more than half (51%) see credit card debt as a serious problem, while only 17% see it as normal. More than 1 in 5 Americans with family members who have or had credit card debt (21%) say they never want to have as much credit card debt as their family.

Interest costs aren’t the only negative effect of credit card debt

Credit card debt can negatively affect our lives, and not only because it’s expensive. Nearly 2 in 5 Americans (38%) who have been in credit card debt report that it has negatively affected their general happiness, while one-third say it has negatively affected their standard of living, and 1 in 5 cited a negative effect on their health.

Palmer says, "Setting a realistic goal to work toward paying off your credit card debt, such as making an extra payment every month, can help you stay on track without feeling overwhelmed. Using an online calculator can also help you see that eventually the debt will get paid off, as long as you keep making steady progress. Cutting back on a few areas of spending, like eating at restaurants, and redirecting that money to debt payments can help you pay off the debt faster."

People keep an eye on interest rates when paying down debt

We know Americans regret debt. But how do they plan to pay it off?

There’s an ongoing debate in the personal finance community about the most effective way to pay down credit card debt. Two popular methods have been dubbed the snowball method and the avalanche method:

• The snowball method: Paying off debts from smallest balance to largest balance. The aim is to build psychological momentum and motivation, because you get “quick wins” as your smallest balances are paid off quickly.

• The avalanche method: Paying off debt from highest interest rate to lowest. This is the most financially advantageous way to pay off debt because it will save you the most in interest.

With each method, you pay the minimum amount due on all other cards and apply all extra money to paying off the targeted balance (the smallest debt in the snowball method, or the highest-rate debt in the avalanche).

We asked Americans which strategy they would be most likely to follow through with to pay down their debt, if they had any. Almost half (48%) say they would pay off cards with the highest interest rate first to reduce the amount of interest accrued, and around 1 in 5 (21%) say they would pay off cards with the lowest balances first to more quickly manage the number of balances.

The smaller your balances and/or the closer your interest rates are to one another, the less it matters which method you choose. But the avalanche method can often save you a good chunk of interest costs.

Let’s say you have three credit cards:

• Card A has a balance of $2,000 and an interest rate of 16%

• Card B has a balance of $3,000 and an interest rate of 20%

• Card C has a balance of $5,000 and an interest rate of 24%

You have $400 to go toward payments each month. Here’s how the interest would add up from beginning balance to payoff if you used the snowball method versus the avalanche method:

Palmer says, "The best method for paying off credit card debt is the one you will stick with. Mathematically, you will pay the least in interest if you pay off the debt with the highest interest rate first, while maintaining the minimum payments on all the other cards. But if you feel more motivated by paying off the smallest or largest balance first, there's nothing wrong with picking the method that most appeals to you. The faster you pay off the debt, the less you will pay in interest — and the sooner you can focus on more exciting life goals."

It’s hard to pay down debt without a little motivation. More than 9 in 10 Americans (91%) point to at least one thing that would motivate them to pay off all of their credit card debt. The top motivators are saving money on interest (60%), freeing up space in their budget (54%) and wanting to make a large purchase, like a home (25%). Here’s the full breakdown:

Whatever your motivation, paying down credit card debt is a worthy goal to limit your interest costs, reduce stress and free up money for the things you want to spend on.

Methodology