American consumers are back to their bad old habits when it comes to credit cards, according to a WalletHub.com research.
“I’m not surprised,” said Nancy Latham, a financial educator at Michigan State University Extension. “It’s easy to get a credit card these days and there are all kinds of incentives for spending money.”
The problem is that the more you spend, the more you pay back.
“Recent credit card data tells us that consumers are not only returning to pre-pandemic spending habits, but are also compensating for reduced spending during the COVID-19 pandemic. After slowing at the height of the pandemic, U.S. consumers added $86 billion in new credit card debt in 2021, continuing a pattern of unsustainable spending that had become the norm before in the disease,” said Jill Gonzalez, WalletHub analyst in a news release. Noting that 33 million Americans were surveyed who also said they expect more debt at the end of 2022.
Cause and effect
“There are two main reasons I believe this is happening,” said Jeffrey Hopson, assistant vice-president of customer services for Michigan Schools and Government Credit Union.
Mortgage rates and home prices have risen dramatically over the past year and have made debt consolidation through mortgage products difficult, especially for those who Lockers are low cost.
Second, the price of everything is rising.
The cost of goods has gone up and the price of goods has increased, causing credit card debt to increase. For example, buying essentials such as gas and groceries is more expensive than a few years ago.
About 89% of people surveyed by WalletHub said they are worried about the economy right now and anyone who says that is showing a brave face or not paying attention to what’s going on. .
“Even government officials who previously referred to inflation as just ‘increasing’ now realize that we have a bigger problem on our hands,” said Gonzalez. “About 76% of Americans are more concerned about inflation than interest rates, and 8 in 10 Americans think we are headed for a recession.”
“Add to that the fact that over the past two years consumers have responded to the COVID-19 lockdown by going out less, and spending less on things like vacations and eating out. In the now with restrictions behind us, people are happy to leave and as a result are using credit cards to pay for expenses,” said Hopson.
“This has resulted in less control of accounts (or less budgets) and credit card issuers paying off balances.” minimum, which means they’re carrying more balances month after month and growing more.”
“When the pandemic hit, a lot of people paid off their loans early because of the money they had and because they didn’t go out and do things,” said Rann Paynter, CEO of the Michigan Bankers Association.
“Now it’s crawling back up,” he said.
The average household credit card balance in the first quarter of 2022 was $8,425, about 12% higher than the same quarter for 2021.
“It could be worse,” Gonzalez said. “Consumers paid down some of their credit card balances in the first quarter of 2022, as is typical for the beginning of the year but we can expect nothing in the next few quarters. it reflects a new debt added to the books.”
Other key findings of the study and research revealed:
• The average household credit card balance was $8,425 in the first quarter of 2022, which was 11.9% higher than the same quarter in 2021.
• The annual increase in credit card debt over the past 10 years is $49.7 billion
• The best prepaid credit cards currently offer 0% APRs for the first 15-21 months with no annual fees and balance discount rates.
Grab it by its horns
Ignoring debt is the biggest mistake people can make.
But watch your spending carefully.
“A well-thought-out budget should be in place,” Gonzalez said. “If you don’t manage your spending and start building a sudden budget, you’ll end up back where you started even if you can get out of debt for a while.”
“You have to calculate how much money you are spending every month and what you spend it on. Because you can’t change what you don’t know,” said Latham, who has been helping people with their budgets for over 40 years.
He remembers one particular couple who were struggling to pay their monthly mortgage, so he had them make a list of their daily expenses. It appears that while the husband is having dinner at home, he stops every day to go to work to buy coffee, a pack of cigarettes and pop for his lunch. So, instead of taking the pop on his way to work he advised him to buy it on sale in large quantities.
Two weeks later, he returned to Latham’s office and said he couldn’t believe the difference it had made.
“He said to me, ‘This is the first time in my life I’ve had money in my pocket at the end of the week,'” Latham said. and notice that it’s not a lot of money but it all adds up.
$1.99 a pop or $9 for a daily breakfast adds up to nearly $55 a week.
“I know it’s worth it,” said Latham, who faced some financial problems after her divorce. “There was no computer at that time. I used a ledger and had a column for everything I bought: gas, groceries, laundry. I checked everything and I never bought without a list.”
When you’re having trouble paying your mortgage or credit card debt, it’s also important to talk to your lender, Paynter says, especially if you know you’re going to have a challenge paying your bills.
“Ultimately the bank wants to help its customers,” he said. “The strength of the customer is the strength of the community and the strength of the bank in that community.”
Consumers can also consolidate their high-interest debt.
“There are a few different types of loans, such as a personal loan, home equity loan or balance transfer to a low interest credit card,” Hopson said. “We always recommend checking your current rate.”
Then compare it to a few other cards. MSGCU for example, has a Titanium Visa Credit Card with a low fixed interest rate. Your own bank may also have similar plans available.
“People trying to get out of credit card debt should also take advantage of the 0% balance transfer credit card while it’s still available. Issuance of good balances often dries up during recessions, or just in times of economic uncertainty, and many people think that the that’s where we’re headed,” Gonzalez said.