More Americans are racking up credit card debt as inflation rages

More Americans are racking up credit card debt as inflation rages

Credit card debt in the United States has increased over the past year as painfully high inflation has prompted more Americans to borrow money in order to keep spending.

A new report from CreditCards.com shows that 60% of credit card holders have had balances on their card for at least a year – a marked increase from 2021, when that rate was just 10%.

“It’s easy to get into credit card debt and hard to get out of it,” said Ted Rossman, principal analyst at CreditCards.com. “High inflation and rising interest rates make it even more difficult to release.”

The burden of debt is borne disproportionately by low-income Americans: the report shows that 59% of people who earn less than $50,000 a year have a month-to-month credit card balance. This compares to 49% of those earning between $50,000 and $80,000 and 46% of those earning between $80,000 and $1,000 per year.

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Visa credit cards are laid out on a desk. (Justin Sullivan/Getty Images) (Justin Sullivan/Getty Images/Getty Images)

The figures come against the backdrop of stubbornly high inflation that has shown few signs of abating: new data released last week by the Labor Department showed the consumer price index rose unexpectedly by 0.1% in August, dashing hopes of a slowdown in inflation. On an annual basis, inflation climbed 8.3%, near the fastest rate since 1981.

Americans owed a staggering $887 billion in credit card debt in June 2022, according to recent data from the Federal Reserve Bank of New York. This represents an increase of approximately 5.5% compared to the first quarter of the year and an increase of 13% compared to the period of the previous year.

“Americans are borrowing more, but much of the increase in borrowing is attributable to rising prices,” New York Fed researchers said in a news release.

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Yet despite the higher use of credit cards and debt, the New York Fed noted that delinquency rates remain relatively low. Total outstanding credit card debt rose to $890 billion in the second quarter of the year, an increase of $100 billion from the same month a year ago.

However, the CreditCards.com report showed that many Americans may not be able to pay off their cards if they lose their jobs.

American credit cards

NEW YORK, NY – JANUARY 28: An air traveler uses a credit card to pay for items on January 28, 2022 at a retail store at John F. Kennedy International Airport in New York City. (Photo by Robert Nickelsberg/Getty Images) ((Photo by Robert Nickelsberg/Getty Images)/Getty Images)

About 45% of all cardholders and 53% of cardholders with debt said losing their job would have a “major impact” on their ability to make at least minimum credit card payments over the next year.

As the Federal Reserve raises interest rates at the fastest pace in decades — policymakers have already approved four consecutive hikes, two of them very large — Wall Street fears a looming recession grow. Most economists expect unemployment to rise in line with the benchmark interest rate.

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Rising interest rates tend to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut spending.

Mortgage rates have nearly doubled over the past year to more than 6%, while some credit card issuers have hiked rates to 20%

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