According to a forthcoming report by the New York Federal Reserve Bank, credit card debt in the United States is expected to reach a historic high of $1 trillion for the three-month period from April through June. This surge in credit card debt is a significant reversal from just three years ago when households were rapidly paying off their credit card debt with stimulus payments received during the COVID-19 pandemic.
The rise in credit card usage and debt is concerning, especially given the current high interest rates. The average credit card annual percentage rate recently hit a new record of 20.53%, surpassing the previous record of 19% in July 1991. This means that carrying debt can lead to individuals paying significantly more for their purchases in the long run.
The inflationary pressures that Americans are currently facing have created financial hardships, particularly for low-income households. The burden of rising prices for everyday necessities such as food and rent falls disproportionately on these households, exacerbating their already stretched budgets.
Although inflation has fallen slightly from its peak in June 2022, it remains about double the pre-pandemic average. The recent consumer price index report shows a 3% increase in prices in June from the previous month, and core prices remain above the Federal Reserve's 2% target.
In light of these challenges, experts suggest that credit card holders with debt explore their options. This can include negotiating for a lower credit card annual percentage rate, considering a 0% balance transfer credit card, reassessing their budget to better manage their debt, and taking advantage of high-yield savings accounts to benefit from higher interest rates. Additionally, it is important for individuals to focus on improving their credit scores.
In conclusion, the rising credit card debt in the United States, coupled with stubborn inflation, presents financial difficulties for many Americans. It is crucial for individuals to assess their financial situation, explore their options, and make informed decisions to tackle their debt effectively.