Survey respondents said they are maximizing their credit card usage to cover living expenses. (iStock)
Economic hardship has led more people to rely on credit cards for living expenses, with some even maxing out their credit cards to cope with inflation and price increases, according to a recent study.
Credit card balances soared to over $1 trillion in the fourth quarter of 2023. Rising credit card debt shows that many Americans are struggling to pay for basic needs. According to Debt.com, about 45% of Americans say they rely more on credit cards because of inflation and rising prices. investigation Said. Nearly 9% of all respondents said they have a credit card in case of a financial emergency.
Additionally, 35% of Americans say they have maxed out their credit card limit in recent years. Of those who had maxed out their credit cards, 85% said they were forced to max out their credit cards because of rising prices due to inflation. About 22% of Americans currently have between $10,000 and $20,000 in credit card debt, and 5% say they have more than $30,000.
“In today’s economic climate, the surge in credit card debt underscores the financial strain many Americans face,” said Howard Dvorkin, chairman of Debt.com. “With debt levels reaching record levels and a significant proportion of individuals maxing out their credit cards, it is clear that households are grappling with unique challenges.”
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Millennials have the most credit card debt
Credit card debt among young Americans, especially millennials, is increasing faster than any other generation. Roughly 31% of this generation said they had at least $10,000 to $20,000 in credit card debt. A high percentage of people in this age group have the highest levels of debt, ranging from $20,000 to $30,000 or more.
The US Federal Reserve has raised interest rates 11 times since 2022 in an effort to reduce soaring inflation to its target rate of 2%. Now that inflation has slowed to some extent, the Fed has slowed its pace of rate hikes, but its restrained monetary policy has pushed credit card rates higher.
“Inflation and rising costs of living are forcing individuals to rely on credit cards as a lifeline,” said Howard Dvorkin, chairman of Debt.com. “Credit cards can provide temporary relief, but accumulating debt at a rapid pace is unsustainable and can lead to long-term financial consequences. People should take note and We need to explore alternative financial strategies to survive these turbulent times.”
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Lower interest rates may increase refinancing opportunities
Some relief could come if the Fed starts lowering interest rates. Fed Chairman Jerome Powell said the Fed will continue to monitor inflation and other economic indicators to determine when to cut interest rates. Cutting rates too early risks a reversal of inflation, while cutting rates too long risks economic growth.
“Our policy rates are likely to have reached the peak of this tightening cycle, and if the economy continues broadly as expected, it may be appropriate to begin tapering policy restraints at some point this year,” Powell said. We believe that there is a high degree of gender equality.” statement.
Lower interest rates would allow consumers to reduce their balances by refinancing high-interest debt into lower-interest credit products, said Michele Ranelli, vice president of U.S. research and consulting at TransUnion.
“If the Fed rate cuts expected in 2024 materialize, consumers with increased credit card balances will look to reduce their monthly payments by refinancing high-cost debt into lower-interest products,” Ranelli said. “Lenders may find opportunities to do so.” statement. “Consumers should know their credit score and try to improve it as much as possible so they are in a position to take full advantage of lower interest rates if the opportunity arises. ”
If you’re having trouble paying off your debt, you can consider taking out a personal loan to consolidate your payments at a lower interest rate and save money each month. Visit Credible to find an interest rate that’s right for you without affecting your credit score.
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