(TND) — A report says Americans have already set one credit card debt record and are quickly on their way to the next one. New report from WalletHub.
The personal finance company released a report Thursday showing credit card debt has reached $1.3 trillion, higher than ever before.
This is a 6% increase from a year ago, bringing the average per American household to $10,848.
But when adjusted for inflation, this is not an all-time high. That is 10% below the inflation-adjusted all-time high set during the Great Recession in 2008.
WalletHub founder and CEO Odyseas Papadimitriou said this may not last long, given the way Americans spend.
WalletHub predicts that credit card debt will increase by an additional $120 billion this year.
“I think we are within striking distance of reaching all-time highs adjusted for inflation,” Papadimitriou said.
WalletHub’s new report (based in part) This week’s Federal Reserve update on consumer credit January presented both good and bad news.
Americans will have 7% less new credit card debt in 2023 than in 2022.
However, it still recorded an increase of $108 billion, well above the 13-year average of $40.3 billion.
According to WalletHub, Americans paid $172 billion in credit card finance fees in the last quarter alone.
Papadimitriou said the debt-to-asset ratio was healthy at 0.73%. But because a home is usually a person’s largest asset, people are not as liquid as they were a few years ago.and high mortgage interest rates He said the real estate market has been subdued, effectively making the prospects for selling homes difficult.
colorado state university economist stephan weiler He said the rising level of revolving credit debt, primarily from credit cards, is indicative of consumer confidence levels.
“There’s overall optimism,” Weiler said. “On the other hand, as an economist, I personally don’t like debt of any kind. American consumers are accustomed to using credit cards and taking on debt more than other countries. “However, if the situation becomes sufficiently large, as it did in 2008, it could pose risks to household and potentially bank finances.”
Friday brought Another strong employment report.
And that the US economy has grown Last quarter was a surprisingly strong 3.2% as inflationary pressures eased and consumers continued to spend.
Inflation has fallen to 3.1% from a peak of 9.1% in June 2022. consumer price index.
Weiler said consumer spending accounts for 70% of the economy and all spending will be large unless most households are at financial risk.
But Papadimitriou worries that’s what’s happening.
There are people who are really struggling to make ends meet, he says.
However, he said many other families are happy with their jobs and finances and spend erratically.
“Now is the time to fortify your castle. Fortify your defenses,” he said, adding that when households are generally in a healthy situation, as they are now, difficult times are bound to come.
And not only is credit card debt increasing; Personal savings rate is low at 3.8%.
Even if you don’t simply keep track of your $5 coffee or $10 cocktail, you might be surprised at how these purchases add up over the course of a month.
Papadimitriou said the “recklessness” began in 2021, when Americans, flush with pandemic-era relief money, were eager to sneak out of their homes, shop, travel and eat out at restaurants.
But as people spent money, prices began to rise as well. And that has strained household budgets, leading some families to turn to credit cards to meet their needs.
Papadimitriou warned that financial problems could quickly get out of hand if people with credit card debt and lack of savings suffer economic shocks such as job loss.
“So all of a sudden you can’t pay for almost anything,” he said. “Now you’ll get late fees. Interest rates will go up. Collectors are calling. Your credit will go down. You won’t have the ability to access credit. Your credit will get hurt and snowball. To do.”
Brought to you by WalletHub chip To manage credit card debt.
Create a budget and stick to it.
Know what’s coming in and what’s going out. According to WalletHub, rank your spending and eliminate waste.
Create an emergency fund. According to WalletHub, the goal is to gradually save about a year’s worth of after-tax income.
Improve your credit rating and dramatically impact your cost of debt.
According to WalletHub, financial fees on your everyday spending card indicate the need for cuts.
The site’s personal finance experts suggested that an “island approach” of credit cards, each serving a specific purpose, could be helpful.
and, 0% balance transfer card is a great tool To pay off credit card debt. This could allow you to pause the interest rate clock for up to 21 months at a lower fee.
Pay off your most expensive debt first.
Also, if budgeting doesn’t work, you may need to look for higher paying job opportunities.
non-profit credit counseling organizationFinancial institutions such as Money Management International can also provide guidance and debt management plans.
