Household debt has been rising for five straight years, and credit cards are a big reason why. Many factors contribute to this increase — unexpected expenses, student loan payments, stagnant wages — but according to data from the automated credit card debt managing app Tally, shared exclusively with BuzzFeed News, credit cards enable plenty of consumption.
“The harsh reality is that credit cards make it easier to justify overspending," Jason Huynh, head of credit and analytics at Tally, told BuzzFeed News. "It’s very easy to justify in the moment that the convenience of buying dinner at a restaurant outweighs making dinner at home. But what seems necessary in the moment can quickly become overwhelming credit card debt.”
Tally sampled 6,500 of its users — most of them ages 18 to 34 — and examined transactions made between January 2017 and October 2019. One group carried above-average revolving balances, ranging from about $11,000 to $20,000. The second group carried lower balances of up to $3,000. Tally then ranked the top categories and retailers based on the amount of money spent annually. They found that no matter whether users carried high or low amounts of debt, they tended to spend on the same categories of expenses.
The top spending category for both groups: eating at restaurants, followed by travel, transportation, and shopping at big box and grocery stores.
- Restaurant purchases accounted for an average debt of $4,658 annually for the high debt group, and $4,171 in the low debt group. Top retailers included McDonald's, Dominos, Buffalo Wild Wings, Chick-fil-A, and GrubHub.
- Travel accounted for an annual average debt of $3,968 for the high debt group and $3,377 for the low debt group. Top retailers included Uber, Southwest Airlines, Lyft, United Airlines, and JetBlue.
- Transportation accounted for an annual average debt of $2,103 for the high debt group and $2,284 for the low debt group. Top retailers included Shell, Geico, ExxonMobil, Chevron and State Farm.
- Grocery and big box stores accounted for an annual average debt of $1,792 for the high debt group and $1,762 for the low debt group. Top retailers included Walmart, Target, Whole Foods, Trader Joe's, and Kroger.
Both groups also spent a lot shopping, for example on Amazon and Apple.
While millennials have been more debt averse than other generations, Tally's data reflects a reliance on credit cards. According to a July report by Experian, millennials' credit card debt grew sharply in the past year. In a CreditCards.com poll, 23% of millennials said they carried a balance on their credit cards for at least a year. Many people also self reported that “day-to-day expenses such as groceries, child care or utilities” was the biggest reason they carried a balance from month to month on their credit cards.
Yet based on the data, it appears people are "likely prioritizing convenience over saving money," said Huynh. "This would explain why the top merchants in the food and drink category are fast-food restaurants. Likewise, ride-sharing services like Uber and Lyft are among the top three merchants in the travel category."
Chantel Bonneau, wealth management advisor at Northwestern Mutual, told BuzzFeed News, "There’s nothing wrong with utilizing a credit card for convenience, but the key is to be clear on the plan to pay it off." She added, "Many people don’t realize how discretionary spending adds up."
"There is definitely a lot of lifestyle creep and unconscious spending," Ted Rossman, industry analyst for the credit card marketplace CreditCards.com, told BuzzFeed News.
To be clear: We're not judging, or suggesting that cutting out that latte habit (or whatever) will solve all your financial troubles. In fact, using credit cards to dine out or travel is not new. One of the first credit cards was Diners Club. A 1952 article in Changing Times (now Kiplinger's Personal Finance) noted the novelty of a card that "lets you eat at many restaurants across the nation, stay at some hotels, rent cars, buy flowers, and use messengers on credit."
Since then, the credit card industry has gotten far more sophisticated. Huynh said popular new rewards cards may create the "false sense of getting a good deal." Travel rewards, in particular, "attract young people who are known to crave experiences over material things. While travel hackers celebrate these credit cards as a great way to see the world for free, not everyone is savvy enough to use these credit cards without racking up debt in the process," he said.
Tally's findings echo the results of a TD Ameritrade survey in which 49% of millennials said "spending money on non-essential expenses affects my credit card debt," a greater share than Gen X and baby boomers. Millennials also reported spending the most on nonessential expenses — $838 per month compared to an average of $697 across all age groups.
A lot of this spending happens without people realizing it. A Bankrate.com survey recently found that 51% of millennials, 42% of Gen X'ers, and 35% of baby boomers were not budgeting their monthly spending.
In the end, bringing down credit card debt means not spending more than what you can pay off. "When I walk through a budget with people, we try to identify the items that are really important to them and the ones that maybe are less important, yet have gotten out of control," said Bonneau, who noted one client who was spending a lot on coffee but "doesn’t even really like coffee."
"It’s easier to change habits if you start with areas that mean less to the person," said Bonneau. And for some, that might just mean less McDonald's and Uber.