Nearly half of Americans say income is not keeping up with inflation: TransUnion

With debt reaching more than $17 trillion and ongoing interest rate increases, many Americans have seen inflation eat away at their incomes, according to a TransUnion survey.

In fact, 46% of consumers said their incomes did not keep up with the rate of inflation in the second quarter of 2023, TransUnion reported. And 38% said their finances were worse than planned by that point. This marks an increase of four percentage points from the previous quarter, TransUnion said. 

"Inflation has consumers in a recession state of mind," TransUnion said in its report. 

When asked if they ranked the following financial stressors as a top-three concern, this is how respondents answered. 

• Inflation: 79%
• Recession: 53%
• Housing prices: 45%
• Interest rates: 41%

To address their financial concerns, many Americans said they would turn to credit. Nearly a third (32%) of consumers said they plan to apply for new or refinance existing credit in the coming year, TransUnion reported. That marked an increase of three percentage points from Q1 2023 and a six percentage point spike from Q4 2022.

"We are living in uncharted territory from a consumer credit perspective," Charlie Wise, the senior vice president and head of global research and consulting at TransUnion, said in a statement. "The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers, especially those in the Gen Z and Millennial generations."

"It’s also likely why a number of people are expressing that they feel they are in a personal recession or soon will be in one, with costs rising faster than their incomes," Wise continued. 

If you’re struggling with high-interest debt, you could consider paying it down with a personal loan at a lower interest rate. Visit Credible to get your personalized rate, without affecting your credit score. 

AMERICA'S DEBT HITS NEW RECORD OF MORE THAN $17 TRILLION: NY FED

Household debt reaches record levels as interest rates increase

While inflation remained high and recession fears loomed, America’s debt hit a new record. Total household debt rose to $17.05 trillion in the first quarter of 2023, according to data released by the New York Federal Reserve.

That brought America’s debt balance to $2.9 trillion above where it was at the end of 2019, before the COVID-19 recession. 

The report came after the Fed increased interest rates for the 10th time since March 2022. Inflation increased 4.9% year-over-year in April, a drop from its June 2022 peak of 9.1%. But inflation remains far from the Fed’s 2% target range and this means more interest rate hikes may be on the way, as soon as the Fed’s June meeting. 

"I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective," Fed Governor Christopher J. Waller said in May at an economic summit in Santa Barbara, California.

Fed Chairman Jerome Powell has expressed that interest rate movements would depend on incoming data. 

"In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," Powell said at a May press conference. "We will make that determination meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation. And we are prepared to do more if greater monetary policy restraint is warranted."

If you’re concerned about higher interest rates, you could consider taking out a personal loan at a lower rate to cover it. Visit Credible to compare options from different lenders at once. 

FINANCIAL STRESS HAS BIGGEST IMPACT ON AMERICANS’ MENTAL HEALTH: SURVEY

How to pay down debt quickly 

Americans struggling with debt have a few options when it comes to paying it off. For those who can, borrowers can pay more than the minimum each month. This can help pay down debt faster while saving on overall interest payments. 

"Some lenders allow you to make an extra payment each month specifying that each extra payment goes toward the principal," Wells Fargo said in a post. "Before you begin, check the terms of your loan to determine whether additional fees or prepayment penalties may apply."

Making more than the minimum payment can also increase credit utilization ratios or the percentage of available credit being used. The lower the ratio, the better it looks for the credit bureaus that calculate credit scores. 

Moreover, people who owe high-interest debt such as credit cards can adopt the following strategies. 

Avalanche method: This involves focusing on paying off credit cards with the highest balances or interest rates first. After the most expensive credit card is paid off, consumers can take the same approach to paying off their next most expensive cards. Credit card interest rates or APRs can be found on credit card statements and through banking websites, as well as apps. Various online tools can help consumers determine how much they need to pay each month to eliminate a particular source of debt in a desired time frame based on factors like interest rates. 

Snowball method: This entails paying off the credit cards with the smallest balances first and then moving on to the larger balances. 

"You may save some money with the ‘avalanche method,’ but if the principal is large, the time it may take to pay off debt with the highest interest can be discouraging and make it difficult to stick to the plan," Wells Fargo said in a separate post. "Paying off small debts quickly can feel rewarding. If you prefer to see progress quickly and work your way up, then the ‘snowball method’ may be a better fit for your debt management goals."

Moreover, consumers can also take out personal loans to pay off total household debt. A personal loan can help people pay off high-interest debt with a loan at a preferably lower interest rate. Consumers then pay back the loan in a stream of fixed payments called installments over a period of generally 12 months to five years.

If you’re ready to take out a personal loan to pay down high-interest debt, it could help to compare your options. Visit Credible to speak with a personal loan expert and get your questions answered. 

PROPOSED CREDIT CARD LATE FEE REDUCTION COULD COST SOME CONSUMERS MORE, SURVEYS SAY

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.