Here’s Why Credit Card Debt Is Rising … And Why You Should Care
The COVID-19 era of consumer savings is officially over. GiphyNews that is entertaining to read
Subscribe for free to get more stories like this directly to your inboxYou might have read news reports throughout the pandemic about how people were able to sock away some extra money. Well, those days are officially over for most of us.
In their place are rising costs and mounting credit card debt. On an individual level, high interest rates are making it even more difficult for folks to pay off their balances … but there are also much wider ramifications.
The Federal Reserve weighs in
America’s central bank has been hiking interest rates in an effort to reverse rising costs that have plagued low-income households in recent years. But that strategy is taking its own toll on cash-strapped consumers.
Here’s what the Federal Reserve has reported:
- Credit card debt rose 5% in the third quarter of the year compared to the prior three-month period.
- The average rate of savings among Americans has been on a downward trajectory since last year.
- A higher rate of credit card and other accounts (about 3% overall) were delinquent between July and September.
Who is bearing the burden?
As you might imagine, the wealthiest Americans are generally doing just fine despite the economic headwinds. But as lower- and middle-income households turn to high-interest credit cards to pay for their necessities, their plight is only getting worse.
And the overall economy is suffering as a result.
As American University economics professor Mary Hansen explained: “Consumer spending, which we all know is the base of [gross domestic product], is really being held up by credit card debt, and maybe it’s not sustainable.”
University of Massachusetts at Boston public policy professor Christian Weller, on the other hand, suggested that high-income consumers will continue to prop up the broader economy — at least for now.
“Those people still have more cash on hand,” he said.