At the beginning of the pandemic, the financial markets saw a sharp decline in
credit card spending. Debt was being paid off in a record-breaking fashion, due in part to the stimulus money being distributed. But
now, almost two years later, debt is starting to creep back up again.
Credit Card Debt Increasing as Lockdowns End
Not all debt is created equally. Mortgage, car loans, and credit cards are vastly
different from one another. The only thing they have in common is that they all
have been increasing in 2021 after going down in 2020. Because of the booming
housing market, the amount of money in mortgage debt has gone up. Auto loan
debt has started to creep up as well, but the most concerning is credit card debt.
Unlike mortgage debt and auto loans, credit card debt is revolving, and you can
spend as much as you want as long as you stay within your credit limit. This is
dangerous because maxing out your credit cards can put you under a mountain of
debt that can take years to recover from, special thanks to the exorbitant cost of interest.
The average interest rate on revolving debt is over 16%, and it can be difficult to
consistently make minimum payments as interest grows with the balance. If you
miss a payment, you will likely incur a fee, and then pay interest on the cost of that fee! All these things combined lead to a cycle
that is very difficult to escape.
Based on a study done by the real estate firm Clever, the reality of credit card
debt is that 40% of people who carry a balance on their credit cards haven’t been
debt-free since 2018, and 15% of these people have been struggling for more than
Credit card debt is starting to climb up again, and in some ways, it could be a good sign that people are borrowing more. Increased debt can suggest that consumers are optimistic about the future of their finances and the security of their jobs and income. The economy is stimulated by this type of confident spending. However, it is a problem if people are turning to their credit cards to purchase the basics and things they cannot live without.
The cost for goods and services have seen a dramatic increase due to the pent up demand from COVID-19. Pandemic-related supply chain issues and stimulus money distributed by the government has increased the supply of currency and driven up demand. It is likely that people are spending more on their credit card because of the effect that inflation has had on their budget for home essentials.
Optimism aside, consumers need to beware of the increasing risk associated with revolving debt (credit card use). The safest bet is to avoid borrowing money that can't be paid back when the credit card bill comes due.
We understand that people get into difficult situations, and credit card spending becomes essential. So, thank goodness for debt repayment programs like the one we provide to consumers experiencing hardship! If you or someone you know is struggling to afford the cost of their debt, give us a call or request an appointment today!
Help with Debt?
Need help with your credit card debt? Talk to certified credit counselor today call 844-872-9046