MORE AMERICANS UNABLE TO PAY OFF CREDIT CARD BALANCES

Six in 10 Americans are unable to pay off their credit card balances for at least a year, compared to five out of 10 a year ago, a CreditCards.com survey found.

The proportion of cardholders in debt for at least two years has risen from 32 percent in 2021 to 40 percent now, the survey showed.

More households are using credit cards to cover basic expenses, such as food and utility bills, as inflation has been rising two to three times faster than workers’ pay.

Roughly 25 percent of survey respondents said they have accumulated lingering credit card balances by using plastic to pay day-to-day expenses; nearly half used cards to cover a sudden emergency, such as car repairs or medical bills.

Consumers younger than 40 are most likely to be mired in credit card debt. They are still on the lower rungs of the employment ladder and earn less than older workers in their fields. 

Many workers, especially younger ones, are toting five- or six-figure student debt that claims a significant portion of their incomes each month, leaving them short of cash for basic needs.

Low-wage workers also make up a significant share of those dragging credit card balances from month to month.

The Federal Reserve is likely to raise interest rates for the fifth time this year next week. Credit-card rates are typically directly tied to the Fed Funds rate, and their increase along with a softening economy may lead to higher delinquencies.

Total consumer debt grew by $23.8 billion in July, reaching a record $4.64 trillion, according to Federal Reserve figures.

Consumers slashed their debt as the COVID era began and opportunities to spend dried up.

However, once lockdowns were lifted and the virus retreated, consumers resumed spending.

TREND FORECAST: As we wrote in “Consumer Debt Soars” (13 Jul 2021) with the government pouring some $8 trillion into consumer’s pockets as they fought the COVID War, the nation went on a spending spree buying stuff; then when lockdowns were lifted, consumers kept buying as though the fake money flow would continue, while also adding services and experiences—travel, dining out, yoga classes, concerts, and so on—to their shopping lists.

It was the wrong decision.

With corporate and government debt also at record levels, the global economic slowdown and looming recession will cost the economy jobs and send millions of households into arrears or bankruptcy.

TREND FORECAST: As interest rates rise and adjustable-rate credit cards adjust upward, more Americans will begin to miss payments, resulting in canceled cards, ruined credit, and revenue lost to banks.

As banks have with mortgages, card issuers will become much more selective and demanding in determining who qualifies as a cardholder. Many cardholders will be denied requests for limit increases or even find their credit limits reduced.