Financial debt is to consumers what an interception is to NFL quarterbacks: a big step backwards, just on the wrong side of the financial grid.
Yet that is exactly where a growing number of US credit card consumers find themselves in the second half of 2022, with plastic debt a growing problem.
CreditCards.com has the goods, with a new study showing that 60% of US credit card borrowers say they’ve been in card debt “for at least a year.” That’s a 50% increase in 2021, the report noted.
Overall, nearly half of credit card holders (48%) have credit card debt from month to month. 40% of credit card borrowers have been in debt for at least two years (up from 32% in 2021), 28% for at least 3 years and 19% for at least five years, CreditCards.com reported.
The biggest culprit in household credit card debt is emergency spending. 46% of respondents mentioned an emergency/unexpected expense, including an emergency/unexpected medical bill (11%), home repairs (10%), car repairs (10%), or some other emergency/unexpected expense (16%). as the main reason for the increase in debt.
Then came the daily household expenses. 24% of credit card holders said everyday expenses like groceries, childcare and utilities have plunged them into deeper credit card debt.
“While many people are doing better, unfortunately many others are doing worse this year,” said Ted Rossman, senior industry analyst at CreditCards.com. “The percentage of people who have been in credit card debt for at least a year increased substantially: a whopping 10 percentage points from last year.”
Inflation takes its toll on consumer card debt
It’s an old refrain in 2022, but inflation is the main reason US credit card consumers are sinking deeper into debt, finance experts told TheStreet.
“In 2022, Americans experienced the biggest rise in inflation in 40 years and we are feeling the pain of rising costs at groceries and gas stations,” said Justin Haun, manager of the Lake Trust financial wellness program. Credit Union, in Brighton. Me. “As inflation has eroded our purchasing power, many Americans have had to rely on credit cards to cover the rising cost of living.”
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Other money management experts agree with that assessment, adding that US cardholders should be extremely cautious going forward as the Federal Reserve braces for another interest rate hike.
“As prices rise at the fastest rate in four decades, credit card gluts reflect inflation, at least in part,” said Lyle Solomon, principal attorney at Oak View Law Group, in Jersey City, New Jersey.
The effects of inflation are visible in high levels of consumer indebtedness, Solomon told TheStreet.
“Because the Federal Reserve is aggressively raising borrowing costs, high inflation is making it more expensive to carry a credit card balance,” he said. “The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point for the second month in a row.”
“The average credit card interest rate is 17.5%, which can go up to 18% or 18.5% depending on what the Fed does,” Solomon added. “So credit card consumers really need to pay attention.”
Control your credit card spending during the holidays
To get out of debt, Americans must avoid overspending, though it will be a tough job as the holiday shopping season begins in October.
“Americans are expected to rack up more debt in the next six months,” Solomon said. “According to a report by LendingTree, people accumulated debt by spending on things that made them happy. Therefore, it is incorrect to assume that Americans incurred credit card debt solely by paying medical expenses or meeting necessary expenses.”
In the coming months leading up to the holidays, Americans will have more reason to spend on things that make them happy, at least in the short term.
“If they’re not cautious and profligate like they’ve been, and the Federal Reserve raises interest rates; people will be in serious trouble at the end of the year,” Salomón said.