Financial debt is to consumers what a catch is to NFL quarterbacks — a big step backwards, just on the wrong side of the financial grid.
Yet that is precisely where a growing number of US credit card customers can be found in the second half of 2022, with plastic debt a burgeoning concern.
CreditCards.com has the goods, with a new study showing that 60% of US credit card borrowers say they have had card debt “for at least a year.” That’s a 50% increase in 2021, the report said.
Overall, almost half of credit card holders (48%) carry credit card debt on a month-to-month basis. 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 for household credit card debt is emergency spending. 46% of survey respondents reported an emergency/unexpected expense, including an emergency/unexpected medical bill (11%), home repairs (10%), car repairs (10%), or other emergencies/unexpected expenses (16%). as the main reason for the increasing debt.
Next came daily household expenses. 24% of credit cardholders said everyday expenses like groceries, childcare, and utilities have pushed them into deeper credit card debt.
“Unfortunately, while many people are doing better, many others are doing worse this year,” said Ted Rossman, Senior Industry Analyst at CreditCards.com. “The percentage of people who have had credit card debt for at least a year has increased significantly — a whopping 10 percentage points compared to last year.”
Inflation causing a big dent in consumer card debt
It’s an old refrain in 2022, but inflation is the main reason U.S. credit card customers are sinking deeper and deeper into debt, financial experts told TheStreet.
“In 2022, Americans have seen the highest jump in inflation in 40 years, and we’ve felt the pain of rising costs at grocery stores and gas stations,” said Justin Haun, financial wellbeing program manager at Lake Trust Credit Union in Brighton. Wed. “As inflation eroded our purchasing power, many Americans have had to rely on credit cards to meet the increased cost of living.”
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Other money management experts agree with this assessment, adding that US cardholders need to be extremely cautious going forward as the Federal Reserve prepares for another rate hike.
“With prices rising at the fastest rate over four decades, the credit card binge reflects inflation, at least in part,” said Lyle Solomon, principal attorney for Oak View Law Group in Jersey City, NJ
The impact of inflation is visible in high consumer borrowing, Solomon told TheStreet.
“As the Federal Reserve aggressively raises the cost of borrowing, high inflation makes it more expensive to maintain a credit card balance,” he said. “The Federal Reserve has raised interest rates by three-quarters of a percentage point for the second month in a row.”
“The average interest rate on credit cards is 17.5%, which can go up to 18% or 18.5% depending on Federal Reserve actions,” Solomon added. “So credit card customers really have to be careful.”
Watch your credit card spending over the holidays
To get out of debt, Americans must avoid overspending, although that will be a difficult task as the holiday shopping season kicks off in October.
“Americans are expected to take on more debt over the next six months,” Solomon said. “According to a LendingTree report, people got into debt because they spent it on things that made them happy. So it is wrong to assume that Americans only incurred credit card debt by paying for medical or essential expenses.”
In the months leading up to the holidays, Americans will have more reasons to spend on things that make them happy — at least in the short term.
“If they aren’t careful and spend as much money as they did and the Federal Reserve is raising interest rates; People are going to be in big trouble at the end of the year,” Solomon said.