Inflation and rising prices are why 31% of Americans said they maxed out their credit cards over the past two years, according to a recent survey.
Skyrocketing costs also pushed 51% of Americans to increase their reliance on credit cards, and why balances have surged in that time period, the Debt.com survey said. Beyond inflation, 28% said they took on more debt because of a salary reduction.
Despite the growing dependence on credit cards to make ends meet, 28% don’t know what their annual percentage rate (APR) is, including how it determines the yearly interest rate they will pay to carry a balance on their credit cards, the survey said.
The Federal Reserve has raised interest rates 10 times in 2022 and 2023 to bring inflation down to a 2% target. The federal funds rate remains in a targeted range of 5% to 5.25%, the highest level in 16 years. Credit cards, for example, have seen interest rates soar, and the average credit card interest rate is now roughly 20%. Carrying a balance can be particularly costly in a high-interest rate environment.
“You can’t get out of debt if you don’t understand what’s keeping you there,” Debt.com’s chairman Howard Dvorkin said. “And you certainly can’t get out of debt if you don’t even know the options you have.”
If you’re having trouble paying off credit card debt, you could consider getting a personal loan at a lower interest rate. Credible can help you compare options from different lenders all in one place without affecting your credit score.
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Credit card debt soars
Despite the more expensive cost of using credit cards, Americans’ balances soared to a record high of $993 billion as of July 5, 2023.
Those with personal debt said they spent 30% of their monthly income toward paying it off, and most said they expected to remain in debt for years, according to a recent Northwestern Mutual survey.
Despite the growing debt burden, most Americans don’t know what steps to take toward debt relief, according to the Debt.com survey. Fifty-eight percent said they had never explored any solution to help them reduce their credit card debt burden.
For those that did try to reduce debt, these were the top three options they used:
- 19% used credit card balance transfers
- 16% turned to consolidation loans
- 14% executed a DIY plan
“It’s one thing to identify the enemy; it’s quite another to conquer it,” Dvorkin said. “Yet our survey also revealed some concerns that will keep us dependent on our plastic.”
If you are struggling to pay off debt, you could consider using a personal loan to consolidate your payments at a lower interest rate, saving you money each month. Visit Credible to find your personalized interest rate without affecting your credit score.
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Some consumers get a student loan break
Americans hoping to get some relief through student loan forgiveness are now facing the additional burden of having to pay off debt they’d already written off, according to a recent Intelligent.com survey.
The U.S. Supreme Court blocked President Joe Biden’s student loan forgiveness plan in late June. The plan would have canceled up to $10,000 in federal loans per borrower making less than $125,000 a year (couples making less than $250,000) and up to $20,000 per borrower for those who used Pell Grants in college, eliminating about $441 billion in outstanding student debt.
The debt ceiling deal officially ended federal student loan forbearance, and borrowers can expect to resume payments on student loans in October, with interest on these loans will begin accruing in September.
However, some long-time borrowers that had been making payments for 20 years or more may be in line for immediate relief. The Biden administration announced that $39 billion in federal student loans would be automatically discharged in the coming weeks due to updates made to income-driven repayment (IDR) plans.
Roughly 800,000 borrowers nationwide will see debt relief within the next 30 days.
If you want to pay down your private student loan debt, a refinance could help you lower your interest rate and monthly payment. To see if this is the right option for you, contact Credible to speak to a student loan expert and get all of your questions answered.
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