By Jessica Dickler -
CNBC
Sometimes a life raft can look a lot like a credit card.
In an economy that has seen the highest rate of inflation since the early 1980s, Americans are struggling to meet everyday expenses and are increasingly relying on credit cards to stay afloat.
Amid a dramatic cost-of-living rise, credit card balances rose 13% in the second quarter of 2022, posting the largest year-over-year increase in more than 20 years, according to a report from the Federal Reserve Bank. from New York.
Total credit card debt is back at $890 billion, just short of the 2019 record.
“Many have to turn to credit cards to pay for basic necessities, especially with inflation pushing prices so high
,” said Allen Amadin, president and CEO of American Consumer Credit Counseling.
The number of people with credit cards and personal loans also hit record highs in the second quarter, according to TransUnion's latest report on the credit industry.
Credit card interest rates near record highs
Meanwhile, the Federal Reserve is taking aggressive steps to rein in inflation, including raising interest rates, which raises the cost of borrowing to curb spending, but that means carrying a month-to-month balance will soon cost even more. more than it costs now.
Since most credit cards have a variable rate, there is a direct connection to the Federal Reserve benchmark.
When the federal funds rate goes up, so do prime rates, and so do credit cards.
Cardholders typically notice the impact within one or two billing cycles.
Image of a woman making a credit card payment. Oscar Wong / Getty Images
The average credit card rate is currently above 17%, significantly higher than almost all other consumer loans, and may reach 19% by the end of the year, which would be an all-time high.
Reducing balances is "crucial for financial health"
"Reducing credit card debt is always crucial to financial health," Amadin said.
“However, now more than ever it is critical that Americans survive everyday expenses and can continue to set aside money for savings.”
Here are his top three tips for paying off credit card debt, once and for all:
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Budget:
To start, using a spreadsheet or online tool can help you see where you're spending money and how best to disperse those funds.
That will also help you identify regular expenses that could be taking money away from your long-term goals.
Cut expenses:
When trying to reduce debt, be sure to temporarily cut out any unnecessary expenses, like streaming subscriptions, dining out, or impulse purchases.
Cutting those expenses will help you stay on budget, stop adding to your revolving balance, and pay off more debt.
Pay more than the minimum balance:
Paying credit cards on time will allow you to avoid late fees and penalties.
But do not limit yourself to paying the minimum required: that will not do much to avoid high interest on the balance.
Paying just more than the minimum will reduce the amount of interest you have to pay each month and help you reach your goal.
In conclusion, the most important thing is to organize your finances and know how much you can spend while stabilizing your economy.