Rising prices have caused the Fed to make a series of interest rate hikes over the last year in an attempt to temper the red hot inflation rate which presently stands over 7%, a long cry from the desired 2% rate.
While some improvement has been made and November saw the lowest year-over-year rate rise since December 2021 (coming in at 7.1% compared to the 7.3% experts had projected), consumers have had to make adjustments to their spending patterns to afford their basic expenditures.
Credit card debt is a major reason why many Americans are struggling to make ends meet.
According to a recent study by Bankrate, 35% of American adults have revolving credit card debt, up from 29% the year before, and 46% of credit card holders have revolving debt on at least one card, also up from 39% the year before.
What’s more, 43% of U.S. adults who carry balances don’t know all of their interest rates, which might lead to a vicious debt cycle if not handled wisely.
Currently, the average credit card interest rate is 20.04%, according to Creditcards.com.
According to Bankrate.com’s Senior Industry Analyst Ted Rossman, “most individuals fall into credit card debt either because of an emergency expense something with their health, their house, or their car or simply because day-to-day costs cost more than they’re bringing in.” “These issues have become increasingly serious owing to rising inflation and increased interest rates.”
The importance of being choosy when using credit cards and why users should do so
There are times when you just must rely on your credit card to make ends meet. However, there is a danger of overuse if this way of payment is used too often.
In spite of this, credit card debt is something that nobody knowingly enters into. Rossman warns that using credit cards to pay for necessities like food and petrol is all too common. “That’s a debt cycle that’s simple to fall into and hard to get out of.”
Excessive use of credit cards might cause…
Carrying a load on a credit card may lead to significant interest costs, making it difficult to reduce the debt amount, especially considering that interest rates on credit cards have achieved record highs.
Your credit score is based on how well various information about you is evaluated. Your account balances and payment history are included. If your amount becomes too high to handle, or if you utilize more over 30 percent of your available credit, it might have a negative effect on your credit score if you don’t pay it off on time.
Lower-Interest Payment Options
Having a credit card might be a fast fix if you are having trouble paying your regular bills. However, additional long-term remedies may be necessary to prevent a debt cycle. Credit cards aren’t your only option; here are some alternatives.
- Increasing your emergency fund: Even a little unexpected cost (or an increase in your usual spending) might derail your financial plan if you don’t have an emergency fund set aside. Aim to save aside some money each month for a rainy day fund. An emergency fund should be large enough to cover three to six months of living costs, according to financial experts. If inflation is very high at the time, you may want to reevaluate whether or not you need to increase your savings to keep up.
- To lessen the blow of price hikes, you may try to boost your income in other ways, such as by starting a side business or asking for a pay rise at work. If you’ve taken on more tasks or made significant improvements at work, your employer may be willing to increase your pay. If “not at this time” is the correct response, think about how you might leverage your abilities and spare time to launch a successful side hustle.
- If you’ve noticed that you’re spending more money than you expected on food, utilities, or transportation, it may be time to review your budget and identify areas where you may save money. It may mean canceling a streaming service or cutting down on eating out to offset the cost of driving. Modifying your spending habits even little may have a significant impact over time.
If your credit card debt was caused by an unexpected expense, Rossman advises looking into a 0% balance transfer card, personal loan, or debt management plan from a trustworthy nonprofit credit counseling service. If you find yourself in a negative financial position every single month, a more systemic approach is needed.