In an economy that has produced the highest rate of inflation since the early 1980s, Americans are struggling to meet day-to-day expenses.
More and more consumers now rely on credit card to get by, which helped propel total credit card debt to $930 billion in the third quarter, just short of the all-time high, according to a new report from the Federal Reserve Bank of New York.
Credit card balances jumped more than 15% from a year earlier, the biggest annual jump in more than 20 years.
“With prices more than 8% higher than they were a year ago, it’s perhaps unsurprising that sales are on the rise,” the Fed researchers said. written in a blog post. “The real test, of course, will be whether these borrowers can continue to make payments on their credit cards.”
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Why it’s ‘harder than ever’ to eliminate credit card debt
Meanwhile, “high inflation and high interest rates are making it harder than ever to pay off credit card debt,” said Ted Rossman, senior industry analyst for CreditCards.com.
Not only have credit card balances returned to pre-pandemic levels, but consumers are also carrying balances for long periods of time.
Among Americans who have credit card debt month to month, 60% have had credit card debt for at least a yearaccording to CreditCards.com.
As the Federal Reserve raised its target federal funds ratecredit card annual percentage rates are also increasing.
High inflation and high interest rates make it harder than ever to pay off credit card debt.
Ted Rossman
senior industry analyst for CreditCards.com
Since most credit cards have a variable rate, there is a direct link to the Fed’s benchmark index. As the federal funds rate rises, the prime rate also rises, and credit card rates follow. Cardholders typically see the impact within a billing cycle or two.
Already, credit card rates are around 19% – a record high – from 16% earlier in the year.
Moreover, these rates will continue to rise since the central bank has indicated even more increases are coming until inflation shows clear signs of receding.
The best thing you can do right now is pay off high-interest debt with a 0% Balance Transfer Card, advised Rossman. Otherwise, consolidate and pay off low-interest credit cards Personal loanhe said.
Check your net worth to “clarify” priorities
How much money you need to earn to cover expenses and save for the future comes down to understanding your net worth and goals, according to Paul Deer, a Boulder, Colorado-based certified financial planner and vice president of advisory services at Personal Capital. .
Your net worth is essentially the sum of all your assets – including cash, retirement accounts, college savings, home, cars, investment property, and valuables such as art and books. jewelry – minus any long-term liabilities or debt, such as a mortgage, student loans, revolving credit card balances, and any other personal loans.
“First and foremost, does your net worth increase or decrease over time?” Deer said. If your net worth has declined, it’s important to work on saving more and spending less.
From there, consider what milestones you want to achieve in the future, Deer said, whether it’s retiring, buying a home or paying for your child or grandchild’s education.
“Laying them out can really help clarify what you should prioritize today.”
Most people agree they need to cut costs to build their savings, yet reports show consumers haven’t given up on food, entertainment or travel.