Robert F. Kennedy Jr., U.S. President Trump’s nominee to be secretary of Health and Human Services, testifies before a Senate Finance Committee confirmation hearing on Capitol Hill in Washington, U.S., Jan. 29, 2025.
Evelyn Hockstein | Reuters
Credit cards have become a ‘de facto emergency fund’
Yet in recent years, as prices have climbed, carrying credit card debt has been difficult for some borrowers to avoid.
“With inflation being so powerful and so stubborn, it’s just shrunken a lot of people’s financial wiggle room down to zero,” said Matt Schulz, chief credit analyst at LendingTree. “Americans look at credit cards as kind of a de facto emergency fund.”
Those balances can be costly.
Because the disclosures are essentially snapshots, it’s not clear if he pays off his balances in full each month, experts say.
If Kennedy pays $50,000 per month toward the lower estimated $610,000 credit card balance, it will take him an estimated 15 months to pay off the debts. Notably, that will cost him approximately $93,000 in interest, according to a Federal Reserve Bank of Dallas calculator.
If instead he pays the same $50,000 per month on a $1.2 million balance, it will take 33 months to pay off, and cost roughly $434,000 in interest.
To reduce those costs, experts say it would be wise for Kennedy to accelerate the paydown of those balances.
“He has a lot of income, so I don’t even know why you’d have all that debt if you have that much income,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners, who reviewed Kennedy’s filing.
That same advice may apply to the average household, for whom credit card debt can also be costly.
The average debt per credit card borrower was $6,380 as of the third quarter of 2024, according to TransUnion. Currently, the average credit card interest rate is 20.13%, according to Bankrate.
Those borrowers may also be paying for other debts. Average unsecured debt — excluding balances tied to real property like cars or homes — climbed 8% to $29,364 in 2024, according to Money Management International.
Paying off debts provides ‘guaranteed risk-free’ return
With interest rates that high, it usually makes the most sense to prioritize debt paydown over other priorities like investing or saving, according to experts.
“If you’re paying down credit card debt at 20%, that’s a guaranteed risk-free, tax-free return,” Rossman said. “You’re unlikely to get that much from your investments.”
Bankrate’s research has found higher-income individuals are more likely to carry long-term credit card debt, with 59% of borrowers who earn $100,000 or more having been in debt for at least a year. That includes 24% who have been in credit card debt for at least five years, Rossman said.
“Higher-income people often get higher credit limits, and sometimes that gets people into trouble,” Rossman said.
While wealthy borrowers may face substantial interest charges, they may be tempted to use credit cards for certain perks. For example, the American Express Centurion Card, also known as the Black Card, comes with a $10,000 one-time fee, as well as an annual $5,000 fee. In return, borrowers, get access to airport lounges, elite status at hotels and help finding tables at restaurants, among other rewards.
Nevertheless, credit cards usually are not the most effective way for the wealthy to borrow money, according to Charlie Douglas, a certified financial planner who works with ultra-high net worth families.
For wealthy investors to avoid having to sell investments and incur capital gains taxes when they want to make a big purchase like real estate, it makes sense to have a line of credit already established, Douglas said. Importantly, that comes with no costs on an ongoing basis.
It may also make sense to have up to one years’ worth of expenses in cash as a buffer, he said.
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