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As Inflation Rises, Americans’ Credit Card Debt Also Rises

(NewsNation) – The pandemic has helped a lot of people catch up on their finances – they weren’t spending as often or really going anywhere. In fact, Americans have paid off a record $83 billion in credit card debt.

But as the world opens up again and inflation hits 40-year highs, the cost of everything is skyrocketing.

So many Americans put normal monthly expenses such as gas and other bills on their credit cards.
Credit card debt is definitely on the rise,” said Matt Schulz, chief credit analyst at LendingTree.

Credit card balances rose by $52 billion in the fourth quarter of last year – the largest quarterly increase on record.

According to the Federal Reserve, total consumer credit jumped an additional $52 billion in March alone. In April, according to Equifax, credit card balances increased more than 14% from a year earlier.

“It’s only a matter of time before Americans break the record for credit card debt,” Schulz said. “That will probably happen later this year.”

Even with skyrocketing credit card debt, total household debt is still historically low — lower than before the pandemic or the Great Recession of 2008.

“Rising credit card debt is not necessarily a sign of struggle; it can actually be a sign of confidence,” Schulz said. “But I suspect we’re seeing a bit of both right now.”

The problem is that inflation affects the cost of everything, including credit card payments. Since most credit cards have a variable rate, most will feel the impact when the Federal Reserve raises interest rates. Those with a balance will soon pay more justly to cover the interest.

If the Federal Reserve announces the expected hike, Equifax estimates that Americans will spend an additional $3.3 billion in interest this year alone.

“The financial margin of error for so many Americans is really, really tiny, and what happens with inflation is that that margin of error is getting smaller and smaller, and in some cases wiped out entirely. “, Schulz said. “Then when you factor in higher interest rates, it makes it even more difficult.”

The average American has a credit card balance over $5,500. For people in this position, Schulz has advice.

“It’s extremely important now to focus on reducing that credit card debt and other high-interest debt that you have because it’s only going to get more expensive,” he said. .