(The Center Square) – As inflation hit a 40-year high last year, Americans’ credit card debt also soared, according to analysis published by the personal finance website WalletHub.
In his Credit card debt study, Wallethub found that consumers racked up $87.3 billion in new debt in 2021. During the fourth quarter of 2021, debt increased by $74.1 billion, the largest increase ever reported, notes Wallethub. It was also a 63% increase above the post-Great Recession average for a fourth quarter.
At the end of 2021, the average household credit card balance was $8,590. “That’s $2,642 below WalletHub’s predicted breakout point,” the report said.
By early 2022, nearly 47% of consumer credit card spending habits had returned to pre-pandemic levels, the analysis found.
According to Wallethub quarterly report credit card inquiry33 million Americans say they will have more credit card debt by the end of 2022. However, 37% say they would do anything to be debt free, according to the report.
In his Fed rate hike report, Wallethub found that the Federal Reserve’s 0.25% interest rate hike on March 16 will cost people with credit card debt an estimated $1.6 billion in additional finance charges in 2022.
Around 88% of respondents said they were concerned about inflation; 55% said rising federal rates were bad for their personal finances, another Wallethub says survey on interest rates.
“People are struggling to make ends meet, and they know that rising rates will only increase the cost of their debt,” WalletHub analyst Jill Gonzalez said in a statement accompanying the results. investigation. “Every 25 basis points the Fed raises its target rate will cost people with credit card debt about $1.6 billion a year.”
A key area where consumers can expect to pay more due to inflation and rising interest rates is the average APR of a 48-month new car loan. Wallethub expects this to rise by around 16 basis points in the months following the Fed’s recent rate hike. By comparison, he notes, the average APR on a 48-month new car loan rose from 4% in November 2015 to 5.5% in February 2019. “That’s an increase of 150 basis points over a period characterized by 225 basis points of the Fed rate. hikes,” he says.
“The average APR for credit card accounts earning finance charges is already over 16%, which is significantly higher than rates charged for secured debt like mortgages and auto loans,” Gonzalez said. “With credit card rates set to rise after the Federal Reserve takes action, people will see the cost of their credit card debt rise.”
Despite Americans’ record debt, about 25% of respondents said it was difficult to take on credit card debt during the COVID-19 shutdowns for several reasons. Federal stimulus checks have filled Americans’ bank accounts, restrictions and security concerns have led to more stays and fewer dining out, and daily travel costs have fallen to near zero, survey results show. .
However, that has changed now that some aspects of society have reopened. Americans “have accumulated new debt at increased rates lately,” Gonzalez said.
On top of the $87 billion in new debt Americans added in 2021, WalletHub estimates an increase of more than $100 billion in 2022.
To help consumers manage their credit card debt and manage their finances, Wallethub has released a advice list in line. These include creating a budget and sticking to it, building an emergency fund, and taking steps to improve credit.