Many Americans are carrying credit card debt month to month amid inflation, the study says

Rising rates led the Fed to make a killing increase in interest last year in an effort to tame the red-hot inflation rate—which currently stands at 7%, far from the target 2% rate.

While some progress has been made and November marked the lowest year-on-year rate increase since December 2021 (it reached 7.1% compared to the 7.3% analysts predicted), consumers should to make changes in their spending habits to cover their basic expenses.

Many of them choose plastic.

Americans rely on credit cards to make money

A new report by Bankrate found that 35% of US adults carry credit card month-to-month debt, up from 29% last year and 46% of credit cardholders carry monthly debt on at least one card, up from 39% last year.

Additionally, in addition to higher debt balances, 43% of US adults carrying balances do not know all of their interest rates which can lead to a vicious spiral of debt otherwise. managed well.

Currently, the average credit card interest rate is 20.04%, according to Creditcards.com.

“Most people get into credit card debt because of an emergency expense – something with their health, their home or their car – or simply because the costs of everyday expenses are more than they can afford,” said Bankrate.com Senior Industry Analyst Ted Rossman. “These challenges have become more important due to high inflation and higher interest rates.”

Why consumers should be selective about their credit card usage

Sometimes, there is no choice but to rely on a credit card to cover your expenses in a pinch. But overusing this payment method can pose its own set of risks.

“No one chooses to have credit card debt, though. If you don’t have cash and you need groceries or gas, those expenses can be taken out on a credit card,” Rossman said. “That’s one a cycle of debt that is easy to get into and hard to get out of.”

Overusing your credit cards can lead to…

  • High interest charges: With credit card interest rates hitting record levelscarrying a balance on your credit card can lead to high interest charges that make it difficult to eliminate your debt balance.
  • Lower your credit score: Your credit score calculated by weighing several different factors. This includes your payment history and balances. Missing a payment because your balance becomes unmanageable or spending more than 30% of your credit limit can negatively affect your credit score.

Alternatives to high-interest credit cards

If you are struggling to pay your daily expenses, a credit card can provide a quick solution. But if you hope to avoid a spiral of debt, you can consider more long-term solutions. Other alternatives to relying on credit cards may include:

  1. Adding to your emergency fund: If you don’t have one emergency fund, the smallest unexpected expenses (or increase in your regular expenses) can throw off your finances. Aim to save a little each month in an emergency fund. When it’s all said and done, experts say your emergency fund should be enough to cover three to six months worth of your regular expenses. In times of high inflation, you can review this amount to determine if you need to put more money aside to account for higher costs.
  2. Looking for ways to increase your income: Getting a side hustle or asking for a raise will help offset the burden of higher prices. Increasing your income can be as simple as asking your employer to re-evaluate your compensation and adjust for additional responsibilities or positive performance. If the answer is “not now,” think about how you can use your free time and skills to start a lucrative business.
  3. Find ways to reduce your costs: If you spend more on groceries, household expenses, or gas, you can review your budget and find other areas where you have wiggle room to reduce your spending. Maybe spending less on food to account for higher gas prices or cutting one of your streaming subscriptions. Small changes in your spending can add up to a lot over time.

“It’s easier to get out of credit card debt if it’s a one-time shock, because you can address that with a 0% balance transfer card or a personal loan or a management plan of debt offered by a reputable nonprofit credit counseling agency,” Rossman said. “If your finances are recurring every month, that requires a more systematic solution.”

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