A recent report shows credit card balances have now reached a record $986 billion, after dropping significantly in 2020 and 2021.
“They’re down 17% as people are spending less due to the pandemic,” said Ted Rossman, senior industry analyst at Bankrate.com. “They used the stimulus funds to pay down the debt. Since then, though, it’s been almost straight.”
Rossman says what we’ve seen over the last year is starting to add up.
Unfortunately, there’s a cumulative effect of all of this, says Rossman. “Higher prices, higher interest rates, these things are really weighing on people.”
The Federal Reserve, in its fight against inflation, has raised interest rates eight times in the past year, making variable rate debt like credit cards more expensive.
Overall, prices in January jumped 6.4% year-to-date. Food costs rose by double digits, with meals at home jumping 11.3%. Most notably, the price of eggs jumped 70.1% over the year.
“Gas prices, although down in recent months, are still high compared to prices in the past,” said Rossman. “I think there’s a spillover effect as well. Now we’re seeing things like rent driving a lot of the inflation up and even though it may not directly impact credit cards, if rent is eating up more of your paycheck then something else is going to take your credit card .”
To get out of that cycle, Rossman says to consider taking advantage of the low-interest-rate balance transfer option.
“I think the idea of a balance transfer is probably the best thing you can do to stop those hours of interest and give yourself a little breathing room, but regardless of which strategy you choose, nonprofit credit counseling, personal loans, side hustles, whatever it is. , I think it’s important to do something,” he said.
Rossman says the average credit card balance is around $5,800. If you make the minimum payments at an average interest rate of 20%, Rossman estimates you will be in debt for 17 years and pay more than $8,200 in interest.
That’s why Rossman says it’s so important to do what you can to pay off your credit card debt. Using your tax return for that purpose, he says, is a good way to put up a dent.