America and the world are going through it economically as inflation hit the highest rate in decades. In 2022, a report showed that 60% of credit card holders carried debt of at least one year. This 0.31% spike from the 3.04% record of last year has added $46 billion to Americans’ credit card balances. One in four debtors carries a balance to cater to their daily living costs. These households are turning to credit card debt to cater to the cost of food and staples because their incomes alone can no longer cover the high prices. These low-income borrowers have also been falling behind on payments resulting in a rise in delinquent credit card debts.
Earlier this year, to manage the rising inflation, The Federal Reserve Bank raised interest rates nationwide. A report by CreditCards.com showed that after 20 consecutive weeks of the credit card APR rising, it hit an average of 18.7% last week. With the interest rates being this high, a credit card balance of $5,000 can accumulate up to $1,000 in a year. As the fed policymakers plan on meeting this week to discuss the next steps, the current card APR is not expected to remain stagnant as the policymakers are expected to announce a hike in the APR.
Americans Forced To Seek Alternatives To Credit Card Debt
Even though some credit card companies like American Express and Hilton offer limited welcome bonuses to consumers, it is not enough. The pressure and financial stress of the high-interest rate have gotten to credit card holders. For the last two years, many have been turning to buy now, pay later services, personal loans, and installments for help with their tight budget. These short-term lending options offer more attractive rates, but how long can this last? Earlier this year, several buy now pay later programs started recording higher delinquent debts than they have in years. Consumers who cannot pay their bills skip timely debt payments, causing some to become delinquent debts.
The Takeaway
As of the end of September, new data shows the national average FICO stands at 716, a recorded rise since the pandemic. Credit cardholders are trying to clear their monthly balances to avoid accumulating high-interest rates. However, the Federal Reserve Bank of New York still recorded increased borrowing due to the high prices, which only shows that the lows of inflation are far from over.