Today, my concern for your finances is over credit card balances and interest rates rising. People are not prepared for what is coming, and I want you to be ready.
The latest figures are out from the Federal Reserve report on consumer credit. The G19 information looks at what types of debts are rising and which are falling.
If we look at the data alone, it indicates as of March 2022; consumer credit increased at a seasonally adjusted annual rate of 9.7 percent during the first quarter. Revolving credit increased at an annual rate of 21.4 percent, while nonrevolving credit increased at an annual rate of 6.1 percent. In March, consumer credit increased at an annual rate of 14 percent.
But let’s dig a little deeper.
Since the first quarter of 2021, credit card balances have been increasing. This is worrisome as expenses increase and inflation eats away at our buying power.
If credit cards are used to make up for the ability to afford regular expenses, it will result in debt that can’t be paid off monthly. This is how people fall into a vicious cycle they can’t get out of.
Credit card debt is now at its highest as people return to shopping and making ends meet.
The expectation is that balances will continue to rise from here. This is good news for credit card companies, bankruptcy attorneys, and debt relief companies.
In the first quarter of 2022, 229 million new credit card accounts were opened.
Credit card debt alone is not a single red flag. Nonrevolving credit card debt has been exploding as well. It adds up, from vehicle loans to mortgages to student loan debt.
All it will take is an unexpected event to tip people over the financial edge.
That event might be world unrest, or it might be civil unrest at home here in America. I don’t have a crystal ball to know what that tipping point will be, but experience has taught me there is always something that causes unrest.
People paid off $83 billion in credit card debt during the pandemic. This is the result of more restrictive pandemic lifestyles, staying home more, less outside entertainment, along with pandemic relief are said to be responsible for that.
The return to spending has had a vast ripple effect on everything. The pandemic created some supply chain issues, but the increase in buying has led to port jams and container ships waiting offshore for room to unload.
As the Federal Reserve raises interest rates to slow inflation, it will lead to higher interest rates on credit cards. Credit card interest rates are variable and tied to the cost of banks borrowing money.
It is not unreasonable to see credit card rates rise to 19 or 20 percent by the end of 2022.
Now is the time to be more conscious about what you put on credit cards that you won’t be able to pay off when the bill arrives. A warning sign that your personal finances are getting stretched is if your overall debt is creeping up. So keep an eye on those balances.
If dealing with the growing high-interest rate credit card debt was about math alone, consolidating that debt into a new lower-cost fixed-rate loan would be worth considering.
However, I’ve seen people consolidate debt only to turn back to credit cards and growing balances because they used them to make ends meet.
Think about a credit counseling program if you can afford your monthly payments and are willing to stop using credit cards. In a nonprofit credit counseling program, your interest rates can be cut.
The key takeaway here should be to keep an eye on your overall debt balances and let that serve as an early warning sign if the balance increases or doesn’t reduce much.
Be sure to visit my site and ask me any credit or debt questions. Go to GetOutOfDebt.org and click on the Ask a Question link in the top menu.
This is Steve Rhode, your Get Out of Debt Guy.
Never forget I’m here for you, and I believe in you.
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