More Americans turning to credit cards to cover basic expenses as inflation rages
35% of households used credit cards to cover basic expenses in December
Luke Lloyd: We're in a recession that's being 'held up' by credit card debt
Strategic Wealth Partners investment strategist Luke Lloyd discusses the impact of the latest inflation report on markets and the crytpo collapse amid FTX's bankruptcy filing.
A growing number of Americans are relying on credit cards to pay for basic expenses as relentless inflation erodes more households' purchasing power.
New data released by the Census Bureau this week found that more than 35% of households used credit cards or loans in December to assist with spending needs in the past week. That marks an increase from 32% in November and just 21% in April 2021, according to the Household Pulse Survey.
The rise in credit card usage is somewhat concerning because interest rates are astronomically high right now. The average credit card APR, or annual percentage rate, set a new record high of 19.14% last week, according to a Bankrate.com database that goes back to 1985. The previous record was 19% in July 1991.
STILL MISSING YOUR TAX REFUND? THE IRS WILL SOON PAY YOU 7% INTEREST
A person uses a credit card as a payment. (iStock / iStock)
If people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if you owe $5,000 in debt – which the average American does – current APR levels would mean it would take about 191 months and $6,546 in interest to pay off the debt making the minimum payments.
US ECONOMY FACES TURBULENT 2023 AS RECESSION FEARS GROW
By comparison, the 16.3% average rate at the beginning of the year would mean paying about $5,517 in interest and getting out of debt after 185 months.
"Credit card rates are much higher than most other forms of debt," Bankrate.com analyst Ted Rossman said. "We’re talking three, four or even five times higher than most people are paying for mortgages, car loans and student loans. Paying off your credit card debt should be a top priority, especially with interest rates at record highs."
Visa credit cards are arranged on a desk. (Justin Sullivan/Getty Images / Getty Images)
A New York Fed survey published in November showed that credit card balances climbed more than 15% from a year earlier, the largest annual jump in more than 20 years.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
"With prices more than 8% higher than they were a year ago, it is perhaps unsurprising that balances are increasing," the Fed researchers wrote in a blog post. "The real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards."