More Americans are piling up credit card debt as inflation rages

Credit card debt in the US has soared over the past year as painfully high inflation has prompted more Americans to borrow money in order to keep spending.

A new report from CreditCards.com shows that 60% of credit card holders have held balances on their cards for at least a year — a marked increase from 2021, when that rate was at just 10%.

It’s easy to get into credit card debt and hard to get out of it,” said Ted Rossman, senior analyst at CreditCards.com. “High inflation and higher interest rates are making liberalization more difficult.”

The debt burden is disproportionately borne by Americans on low incomes: The report shows that 59% of individuals who earn less than $50,000 a year carry a credit card balance from month to month. This compares to 49% of those who earn between $50,000 and $80,000 and 46 percent of those who earn between $80,000 and $1,000 a year.

Inflation rose faster than expected in August, driving up prices painfully

Visa credit cards are arranged at the desk. (Justin Sullivan/Getty Images) (Justin Sullivan/Getty Images/Getty Images)

The numbers come against a backdrop of stubbornly high inflation that has shown few signs of abating: new data released last week by the Labor Department showed that the Consumer Price Index rose unexpectedly by 0.1% in August, dashing hopes of a slowdown in inflation. On an annual basis, inflation rose 8.3%, hovering near the fastest pace since 1981.

Americans owed $887 billion in credit card debt as of June 2022, according to recent data from the Federal Reserve Bank of New York. That was an increase of about 5.5% from the first quarter of the year, and an increase of 13% from the same period last year.

“Americans are borrowing more, but a large part of the increased borrowing is attributable to higher prices,” researchers from the Federal Reserve Bank of New York said in a press release.

Bank of America warns of new declines for the S&P 500 as an ‘inflation shock has not passed’

However, despite the heavy use of credit cards and debt, the Federal Reserve Bank of New York has noted that delinquency rates remain relatively low. Total outstanding credit card debt rose to $890 billion in the second quarter of the year, an increase of $100 billion from the same month a year earlier.

However, a CreditCards.com report showed that many Americans are at risk of not being able to pay their cards if they lose their jobs.

American credit cards

NEW YORK, NY – JANUARY 28: An airline passenger uses a credit card to pay for items on January 28, 2022 at a retail store at John F. Kennedy International Airport in New York City. (Photo by Robert Nickelsberg/Getty Images) ((Photo by Robert Nickelsberg/Getty Images)/Getty Images)

About 45% of all cardholders, and 53% of cardholders with debt, said losing their jobs would have a “significant impact” on their ability to make at least minimum credit card payments over the next year.

With the Federal Reserve raising interest rates at the fastest pace in decades — policymakers have already approved four consecutive increases, including huge ones — there is growing fear on Wall Street of an impending recession. Most economists expect unemployment to rise in tandem with the benchmark interest rate.

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Raising interest rates tends to create higher rates on consumer and business loans, slowing the economy by forcing employers to cut back on spending.

Mortgage rates nearly doubled from a year ago to more than 6%, while some credit card issuers raised their rates to 20%.

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