With high inflation and interest rate hikes, 6 in 10 credit card holders say they’ve owed money for at least a year

By Emma Ockerman

And 24% of credit card debtors said their balances pile up on everyday expenses like groceries and childcare.

Nearly half of all credit card users report having debt every month – and 60% of people in credit card debt have been owing money for at least a year, according to a new report from Bankrate’s CreditCards.com .

As credit card balances plummeted during the pandemic, in part due to a drop in credit card purchases in the early days of COVID-19 and stimulus checks that helped people pay off debt , those days are long gone. Today, consumers are facing the highest inflation in 40 years. The second quarter of 2022 saw the largest cumulative increase in credit card balances in more than 20 years from a year earlier, researchers at the Federal Reserve Bank of New York said last month.

At the same time, it is becoming increasingly expensive to incur credit card debt. As the Federal Reserve raises its benchmark interest rate to rein in rising prices, the annual percentage rate of charge (APR) on new credit card offerings is hitting highs not seen in decades.

“Even though Americans’ total credit card balances are down 4% from the end of 2019, according to the New York Fed, our data is further evidence of the K-shaped economy,” Ted said. Rossman, senior industry analyst at Bankrate, in a statement. “While many people are better, unfortunately many others are worse.”

The CreditCards.com report used data from an online survey commissioned by YouGov, which interviewed a sample of 2,419 adults, including 1,834 credit card holders, from August 24-26. He revealed that a year ago, 50% of people with debt had been in the red for at least a year, compared to 60% today. In 2020 and 2019, meanwhile, 56% of people with credit card debt had been owed money for at least a year, Rossman told MarketWatch in an email.

“I think last year’s 50% figure was artificially low because so many people paid off their credit card debt during the pandemic (with stimulus money, because they were spending less on travel and entertainment, etc.) But now it’s 60% — the highest in four years,” Rossman said in an email. “I think it shows how high inflation and higher interest rates are making credit card debt an even more persistent problem. And while we’re grateful the pandemic has improved and more people travel and dine out, these expenses can create cost pressures too.”

Rossman’s advice for people struggling with credit card debt was to get a 0% balance transfer card, which can come with promotions that pause “the interest clock for up to 21 months.” . Rossman said “it can be a tremendous tailwind to getting out of debt pretty quickly while saving hundreds or even thousands of dollars in interest.”

People from all income backgrounds are feeling the pain of credit card debt, according to the report. Fifty-nine percent of cardholders earning $50,000 or less in household income each year had credit card debt, while nearly half of those earning up to $99,999 each year were also in the red , according to the report. Even 37% of cardholders with household incomes over $100,000 have month-to-month balances, according to the report.

Nearly half of debtors said an emergency expense — like paying an unexpected medical bill, home repair or car repair — caused their balance to increase, the report found. But, disturbingly, nearly a quarter of credit card debtors said their problem was with basic daily expenses, such as groceries and childcare. And this problem was most acute for millennials.

“Thirty-one percent of millennials with credit card debt said their daily expenses were the main cause of their credit card debt, followed by 26% of Gen Zers, 24% of Gen Xers, and 20% of baby-givers. boomers,” the report said.

-Emma Ockerman


(END) Dow Jones Newswire

09-20-22 1201ET

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Stephen V. Lee