Record-High Credit Card Interest Rates Plague Cash-Strapped Consumers
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Amid soaring costs caused, at least in part, by the Biden administration’s economic policies, an increasing number of Americans have been forced to make purchases using credit. In turn, interest rates have been ticking upward in an effort to bring down the inflation rate, thus making it even harder for those struggling consumers to emerge from their debt.
The severity of the situation was put in stark focus by the Consumer Financial Protection Bureau, which confirmed in its recent report that interest on credit cards has reached a record high, costing borrowers roughly an extra $25 billion annually.
In addition to the rates established by the Federal Reserve, which are currently at 22-year highs, credit card companies also tack on additional borrowing costs in the form of an annual percentage rate.
The average APR margin has also soared in recent years, rising about 4.3 percentage points over the past decade.
Both of these rates combined have created a vicious circle for consumers already being weighed down by the higher cost of food, energy, housing and more.
According to a report late last year, so-called revolving debt, which typically involves credit cards, hit a new high in October. Such debt increased by nearly $3 billion that month to hit a total of $1.3 trillion.
Reliance on revolving debt has been widely linked to spending on necessities that have become increasingly unaffordable for working-class households under the current administration.
Economists Tim Quinlan and Shannon Seery Grein addressed the troubling trend, noting that the spike in credit card debt “may indeed reflect a devil-may-care attitude on the part of some consumers, but it is also simply a function of inflation that has flared up in ways that haven’t been seen in decades.”
Their commentary concluded: “When your expenses are growing faster than your paycheck, credit cards are not an indulgence, they’re a lifeline.”
A Redfield & Wilton Strategies survey conducted last year found that about three in four consumers were at least somewhat concerned about their ability to pay their credit card debt.
“Rising prices have led some consumers to rely on their credit cards to make ends meet,” said NerdWallet’s Melissa Lambarena. “We’re now at a point where credit card debt is at an all-time high, and the elevated cost of interest rates has only added to their debt burden.”