Sometimes a life raft can look a lot like a credit card.
In an economy that has produced the highest rate of inflation since the early 1980s, Americans are struggling to keep up with everyday spending and are increasingly relying on credit cards to stay afloat.
Amid a dramatic increase in the cost of living, credit card balances rose 13% in the second quarter of 2022, posting the largest year-over-year increase in more than 20 years, according to a report from the Federal Reserve Bank. from New York. .
Total credit card debt is back at $890 billion, just shy of the 2019 record.
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“Many have to rely on credit cards to pay for basic needs, especially with inflation pushing prices so high,” said Allen Amadin, president and CEO of American Consumer Credit Counseling.
The number of people with credit cards and personal loans also hit record levels in the second quarter, according to TransUnion’s latest credit industry outlook report.
Credit card interest rates near record levels
Meanwhile, the Federal Reserve is taking aggressive steps to rein in inflation, including raising interest rates, which raises the cost of borrowing money to cut spending, but that means carrying a balance month-to-month will soon cost. even more than it costs now. .
Since most credit cards have a variable rate, there is a direct connection to the Federal Reserve benchmark. As the fed funds rate rises, so does the prime rate, and credit card rates do the same. Cardholders typically see the impact within one or two billing cycles.
Average credit card rates are currently just over 17%, significantly higher than almost any other consumer loan, and may hit 19% by the end of the year, which would be an all-time high.
Now more than ever it is critical that Americans survive the everyday costs of living.
Allen Amadin
President and CEO of American Consumer Credit Counseling
Reducing balances is ‘crucial for financial health’
“Reducing credit card debt is always crucial to financial health,” Amadin said. “However, now more than ever it is critical that Americans survive daily costs of living and still be able to set aside money to save.”
Here are his top three tips for paying off credit card debt, once and for all.
Create a budget: For starters, using a worksheet or online tool can help you see where you’re spending money and how to best allocate those funds. That will also help you identify regular expenses that could be taking money away from your long-term goals. Cut expenses: When you’re trying to reduce debt, be sure to temporarily cut out any unnecessary expenses, like streaming subscriptions, dining out, or impulse purchases. Cutting back on those expenses will help you stay on budget, stop building up your revolving balance, and pay off more debt.Pay more than the minimum: Paying your credit cards on time will ensure you avoid late fees and penalties. But don’t just pay the required minimum, that won’t do much to avoid hefty interest charges on the balance. Only paying more than the minimum will reduce the amount of interest you must pay each month and help you reach your goal.
Source: www.cnbc.com