As inflation goes up, so does Americans’ credit card debt


FILE – This Aug. 11, 2019 file photo shows credit cards in New Orleans. (AP Photo/Jenny Kane, file)

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

But as the world opens back up, and with inflation at 40-year highs, the cost of everything is soaring.

So many Americans are putting normal monthly expenses such as gas and other bills on their credit cards.
“Credit card debt is definitely trending up,” said Matt Schulz, LendingTree chief credit analyst.

Credit card balances increased 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 by another $52 billion in March alone. In April, Equifax says, credit card balances grew by more than 14% from the year before.

“It’s only a matter of time until Americans just shatter the record for credit card debt,” Schulz said. “It’s going to happen probably 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 in 2008.

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

The problem is that inflation is affecting the cost of everything — including people’s credit card payments. Since most credit cards have a variable rate, most will feel the impact when the Federal Reserve increases interest rates. Those carrying a balance will soon be paying more just to cover the interest.

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

“So many Americans’ financial margin for error is really, really tiny, and what happens with inflation is that that margin for error gets even smaller and smaller, and in some cases wiped out entirely,” Schulz said. “Then when you factor in higher interest rates, it makes it even tougher.”

The average American carries a credit card balance of more than $5,500. For people in that position, Schulz has one piece of advice.

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

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