To keep up with rising prices, many consumers rely on them credit cards.
Credit card balances grew on an annualized basis and reached $ 841 billion in the first three months of 2022, according to data released Tuesday by the Federal Reserve Bank of New York.
Although balance sheets have declined slightly from where they stood in late 2021 after the peak of the holiday shopping season, they are expected to continue to grow from here, according to researchers from the New York Fed.
“There is a good chance that the overall balance of Americans on credit cards will soon reach a new record high, which means a sharp reversal compared to the rapid decline in 2020 and early 2021,” said Ted Rosman, senior industry analyst at CreditCards.com .
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An additional 229 million new credit card accounts were also opened in the first quarter, up from the previous quarter and higher than the pre-pandemic level.
Many accounts were closed during the pandemic, so it’s no surprise to see more new accounts now, say researchers from the New York Fed.
However, the growth of borrowing along with car loans, student debt and mortgages led to an increase in total household debt. a record 15.84 trillion at the beginning of the year.
After consumers paid off $ 83 billion in credit card debt During the pandemic, due to checks on government incentives and fewer shopping opportunities, credit card balances steadily increased amid rising prices for gas, food and housing, among other necessities.
“Of course, this is largely due to high consumer spending, but credit and debit cards have contributed to the growth of e-commerce and the constant migration of cash,” said Rosman. “It’s great if you can pay in full, avoid interest and get rewards, but potentially very expensive if you pay interest every month.”
Because most credit cards have a variable annual rate, there is a direct link to the Fed benchmark.
Currently, annual figures average just over 16%, but by the end of the year could exceed 18%, which would be an all-time recordaccording to Rosman.
To date, the record is there 17.87%set in April 2019.
“Because of rampant inflation and rising interest rates, things will get worse before they get better,” said Matt Schultz, chief lending analyst at LendingTree.
If you have a balance, try calling the card issuer to ask for a lower rate, combine and repay high interest credit cards with lower interest rates real estate loan or personal credit or switch to an interest-free credit card with a balance transfer, he advised.
“Consumers need to act now to eliminate credit card debt, because it will only get more expensive – and in a hurry,” – said Schultz.
To create better credit card habits, be sure to repay your balance on time and in full each month and make only those purchases you can afford to pay for, said Holly O’Neill, president of retail banking at Bank of America.
“Spending within your funds will give you more money at the end of each month and help reduce your debt,” she said. “As an added bonus, spending less than your limit allows will also help you boost your credit rating.”