Financial debt is to consumers what an interception is to NFL quarterbacks – a big step backwards, only on the wrong side of the financial grill.
Yet that’s exactly where a growing number of American 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 debtors say they’ve had card debt “for at least a year.” That’s up from 50% in 2021, the report notes.
Overall, almost half of credit card holders (48%) have credit card debt from month to month. 40% of credit card debtors 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 of household credit card debt is emergency spending. 46% of respondents cited an urgent/unexpected expense, including an urgent/unexpected medical bill (11%), home repairs (10%), auto repairs (10%), or other urgent/unexpected expenses (16%), as the main reason for the increase in debt.
Next come daily household expenses. 24% of credit card holders said everyday expenses, such as groceries, childcare and utilities, pushed them into deeper credit card debt.
“While a lot of people are doing better, unfortunately, a lot of people 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 has increased significantly – a whopping 10 percentage points from last year.”
Inflation puts a big dent in consumer card debt
It’s an old refrain in 2022, but inflation is the main reason American credit card consumers are sinking deeper into debt, financial experts tell TheStreet.
“In 2022, Americans saw the biggest rise in inflation in 40 years and we felt the pain of rising costs at groceries and gas stations,” said Justin Haun, program manager for Financial Wellness at Lake Trust Credit Union, in Brighton, Mi. “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 are rising at the fastest rate in four decades, the credit card frenzy at least partly reflects inflation,” said Lyle Solomon, senior attorney at Oak View Law Group, in Jersey City, NJ.
The effects of inflation are visible in high levels of consumer borrowing, Solomon told TheStreet.
“Because the Federal Reserve is aggressively raising borrowing costs, high inflation makes it more expensive to maintain 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 Federal Reserve does,” Solomon added. “So credit card consumers really need to be careful.”
Keep track of your credit card spending this holiday season
To get out of debt, Americans need to avoid overspending, although it will be hard work since the holiday shopping season begins in October.
“Americans are expected to take on more debt over the next six months,” Solomon said. “According to a report by LendingTree, people got into debt for spending on things that made them happy. So it’s wrong to assume that Americans incurred credit card debt just by paying medical bills or covering the necessary expenses.
In the coming months leading up to the holidays, Americans will have more reason to spend on things that make them happy — in the short term, at least.
“If they’re not careful and splurge like they did, and the Federal Reserve raises interest rates; people will be in big trouble at the end of the year,” Solomon said.
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