Financial Literacy Month Is a Great Time to “Take Charge” of Your Credit

This opinion piece originally appeared in the St. Louis Post-Dispatch.

April is Financial Literacy Month, which means it’s a great time to take stock of how you’re managing your finances. Checking your credit card balances is an excellent place to begin.

U.S. credit card debt made the news last summer when it exceeded $1 trillion for the first time. Despite fading from the headlines in recent months, credit card debt has continued rising.

The Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit notes that credit card balances had grown to a total of $1.13 trillion, increasing $50 billion in the fourth quarter last year. Other debt levels rose as well. In fact, total household debt is at a historic high of $17.5 trillion.

The national credit situation is gloomy, and things aren’t that much different locally. Individuals ages 20 to 64 in the St. Louis region have an average of $4,580 in credit card debt. That is just a bit lower than the national average of $4,837, according to year-end 2023 data calculated by the St. Louis Fed from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax.

Credit card debt can be difficult to manage because of high interest rates on balances carried past the grace period; according to Forbes Advisor, the average credit card interest rate was 27.9% as of late March.

Given credit card debt’s high cost, you might ask why people carry so much of it. One explanation involves psychology.

For example, we tend to put a premium on present benefits and discount (or minimize) future benefits. This can help explain why we might choose to buy the things we want now rather than waiting, using debt to push off the costs of the purchases. It can also help explain why we might prefer to make only the minimum payment on our credit cards; it allows us to continue postponing costs.

Once you include interest, failing to pay off your credit card just means you’re paying a lot more. If you’re up to the task, here are some strategies for responsible credit card management.

The underlying problem for many people is that their monthly spending exceeds their monthly net income. So step one is getting your day-to-day spending under control.

Start by tracking your spending. This might mean carrying a journal to note all your spending activity, even the little things that don’t seem important such as a to-go latte or fast-food meal. Closely examine your accounts online. If you use multiple credit cards or payment services, make sure to keep tabs on each.

Once you have a good idea of how much you’re spending and what you’re spending money on, you can set up a budget to ensure that your spending aligns with your income.

Of course, setting up a budget is the easy part. It only works if you stick with the spending limits you’ve established. Not following through with a budget is like developing an exercise plan to improve your fitness but never going to the gym.

When it comes to credit cards, paying off the balance in full every month will help you avoid high interest charges. There are two prevailing strategies for paying off debt.

The first strategy is to pay off the credit card with the smallest balance, then tackle the card with the next smallest balance, and so on, until all your cards are paid off. This strategy relies on a sense of accomplishment to keep you going.

The second strategy is to pay off the credit card with the highest interest rate first, then tackle the card with the next highest interest rate, and so on, again until all your cards are paid off. This should mean paying less overall and accomplishing your goals faster. But, in the end, the important thing is to pay off the debt—whichever method you choose.

Remember, Financial Literacy Month is a great time to take charge of your finances. The St. Louis Fed has free resources to help. Start at stlouisfed.org/education.

The author’s views are his own and do not necessarily reflect those of the St. Louis Fed or the Federal Reserve System.