Despite lower gas prices, inflation is still something many families are battling, and a new report from TransUnion shows it is forcing more families to rely on lines of credit.
TransUnion reports the number of people with credit cards and personal loans hit record highs in the second quarter of 2022, as the total number of credit cards exceeded 500 million for the first time ever, and the balances on those cards jumped 13% during the same timeframe, the largest year-over-year increase in more than 20 years.
“A lot of people are relying on their lines of credit as a safety net, a financial safety net, to cover some of the costs of living,” said Bruce McClary, the senior vice president of communications and membership for the National Foundation for Credit Counseling.
The jump in credit card usage is a large shift from trends brought on by the pandemic. In 2020, the Fed reported credit debt in the US fell $120 billion, the largest decline ever, and then another $28 billion in the first four months of 2021.
“The NFCC conducted a survey and released those findings earlier this year that showed about 2 in 5 Americans carry credit card debt from month to month and fewer than 1 in 3 even have a plan, a basic plan, on how to pay off the debt that they owe,” said McClary, who cautions of further interest rate hikes.
“If you’re in a position where you’re not paying off your credit card debt within your billing cycle and you’re carrying debt from month to month you should be concerned about these Fed rate increases because it is going to increase the cost of repaying the debt that you already owe.”
The TransUnion report also shows the number of people who are missing payments on their debt is increasing faster among those with below-average credit scores. McClary says it should make many of us look at our budgets to see where we can trim some money so that repayment doesn’t get out of hand.
“It’s important to make a plan for a worst-case scenario. And recessions always end up affecting the job market and this could mean layoffs,” he said.
Prioritizing debt repayment can be difficult with higher costs of goods, but McClary says the more you can put towards it monthly, even if it is not as much as you would like, will allow you to save on interest rate costs in the long-term.