Research shows that American credit card debt is rising fastest in 20 years. If the US Federal Reserve raises interest rates again this week, loan costs will increase even more.
A new study says that US credit card debt grew the fastest in 20 years in the first three months of this year.
The total balances on credit cards rose by more than 17% in the first quarter of this year compared to last year; this is the most considerable yearly increase in at least 20 years, according to a report by Hedgeye, which used data from the US Federal Reserve.
The cost of revolving credit, which is different from instalment loans in that it doesn’t have a set number of payments, kept going up to multi-decade highs, the Hedgeye study said. Fed data shows that the average interest rate on new credit cards was 20.82% last week, up from just over 12% a decade ago.
Fed figures from June show that Americans now have a record amount of credit card debt: nearly $988 billion.
Financial experts think the debt keeps getting more significant partly because high inflation has made it harder for people to pay their monthly bills without using credit cards.
In June 2022, when energy and food prices increased, the consumer price index reached its highest level in 40 years, at 9.1%. Since then, inflation has gone down. It was between 5% and 6% in the first quarter of this year and only 3% in June.
The Fed has raised rates ten times in just over a year, taking the federal funds rate from 1.75 per cent a year ago to 5.00 to 5.25%. This drop in inflation came after the Fed raised rates ten times. Even though inflation is slowing, most people think the Fed will raise rates again this week.
