After months of higher prices on basic goods, Americans have increasingly turned to using their credit cards to cover their expenses, so now they have begun to show signs of increasing indebtednesswhich could turn into a debt crisis.
Red flags among US consumers are beginning to appear as credit card balances are at an all-time high and Annual Percentage Rates (APRs) are also increasing.
A new report from CreditCards.com shows that the 72% of credit card debtors increased their balances in the past year. Nearly half, 48%, took on additional debt due to rising costs, while 34% saw their balances increase due to rising interest rates.
In addition, 24% reported having a break in household income.
For its part, the Federal Reserve Bank of New York recently reported a 15% year-over-year increase in total credit card balances for the third quarter of 2022, representing the largest increase in more than 20 years.
According to the company’s sister site, bankrate.com, there are also more people who have debts. About 46% of credit card holders they have debts from month to monthcompared to 39% a year ago.
Discover Financial Services CFO John Greene told Fox Business that “the worst is yet to come”. Discover anticipates that the default rate will grow further in 2023, between 3.5% and 3.9% per year.
What can consumers do
Various experts have pointed out that emergency expenses are the most common explanation for credit card debt, such as some kind of unexpected medical billauto repair or home repairs.
Day-to-day expenses that are resolved with credit cards are also another common scenario in consumer debt.
Debt.com president Howard Dvorkin recommends that anyone with credit card debt devise a plan to pay it off as soon as possible, prioritizing the cards with the highest interest rate first. He also urges people to track where their money is going and look for spending that can be cut.
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