Financial debt is to consumers what an interception is for NFL quarterbacks – a big step backward, only on the wrong side of the financial gridiron.
Yet that’s exactly where a growing number of U.S. credit card consumers find themselves in the second half of 2022, with plastic debt a burgeoning problem.
CreditCards.com has the goods, with a new study showing 60% of U.S. credit card debtors saying they’ve been in card debt “for at least a year.” That’s up from 50% in 2021, the report noted.
Overall, nearly half of credit cardholders (48%) carry 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 household credit card debt culprit is emergency expenses. 46% of survey takers cited an emergency/unexpected expense, including an emergency/unexpected medical bill (11%), home repair (10%), car repair (10%), or some other emergency/unexpected expense (16%), as the major reason for rising debt.
Next came daily household expenses. 24% of credit card holders said day-to-day expenses, such as groceries, child care, and utilities, have plunged them into deeper credit card debt.
“While many people are doing better, sadly, many others are doing worse this year,” said Ted Rossman, senior industry analyst at CreditCards.com. “The percentage of people who’ve been in credit card debt for at least a year increased substantially – a whopping 10 percentage points from last year.”
Inflation Popping a Big Dent in Consumer Card Debt
It’s an old refrain in 2022, but inflation is the primary reason U.S. credit card consumers are sinking deeper into debt, finance experts told TheStreet.
“In 2022, Americans have experienced the highest jump in inflation in 40 years and we have felt the pain of rising costs at the grocery store and gas stations,” said Justin Haun, financial wellbeing program manager 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 increased cost of living.”
Other money management experts agree with that assessment, adding that U.S. cardholders need to be ultra-cautious going forward, as the Federal Reserve gets ready for another interest rate hike.
“As prices increase at the quickest rate over four decades, the credit card binge reflects inflation at least partly,” said Lyle Solomon, principal attorney at Oak View Law Group, in Jersey City, N.J.
The effects of inflation are visible in the high levels of consumer borrowing, Solomon told TheStreet.
“Because the Federal Reserve is aggressively increasing borrowing costs, high inflation makes it more costly 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 consecutive month.”
“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 have to pay attention.”
Watch Your Credit Card Spending Over the Holidays
To climb out of debt, Americans have to avoid overspending, although that'll be a tough job since the holiday shopping season starts in October.
“Americans are expected to rack up more debt in the next six months,” Solomon said. “According to a LendingTree report, people racked up debt for spending on things that made them happy. So, it's wrong to assume that Americans incurred credit card debt solely by paying medical or covering necessary expenses.”
In the next few months leading into the holidays, Americans will have more reasons to spend on things that make them happy - for the short term, at least.
“If they’re not cautious, and splurge like they’ve been doing, and the Federal Reserve increases interest rates; people will be in deep trouble at the end of the year,” Solomon said.
