KNOXVILLE, Tenn. (WATE) — If you’ve been using your credit card a lot recently, you’re among the millions of people who have racked up debt at record rates. In a few months, there is a good chance that the total credit card balances of people in the United States will soon reach a new record. This record debt would be a big reversal from the sharp decline seen in 2020 and early 2021.
At the height of the pandemic, spending and credit debt slowed down, but things have apparently changed. While most employed Americans are making more money, and as average hourly earnings have gone in the past year, many paychecks nevertheless are being pinched with the highest inflation rate in 40 years.
Across America, we are on a spending spree using our credit cards at a record pace. The most recent release of the Federal Reserve’s monthly consumer credit report shows there’s a 35.3% increase, in March 2022, in revolving credit debt. American Express said its customers spending increased 35% in the first quarter of 2022 compared to the same period in 2021. Capital One reported a 26% year-over-year increase in purchasing volume and Chase noted a 21% year-over-year increase during its first quarter.
“One of the things is with COVID there was so much influx of money. A lot of small businesses got loans, free money. Lots of individuals got free money. One of the things about finance is that your expenses always rise up to meet your income. Expenses always rise up to meet your income. So now what is happening with people having this extra money, people are used to this extra spending,” said John Fawaz, Financial Planners of TN.
The youngest Americans,18 to 29, are having the hardest time paying off debt with the highest delinquency rates of 9.3% The rate drops to 6% for those 30 to 39. Another drop to 5.6% for 40 to 49-year-olds. Then 4.8% for those between 50 to 59. Fawaz suggests some way to start chipping away at credit card debt.
“One of the easiest things you can do, but you have to be cautious, if you some equity in your home is to do a home equity loan and pay of the credit cards. The problem you have to careful because if you are not disciplined, a year down the road you would have a home equity loan and you would have a new credit card. If you do this strategy make sure that, you do not have new credit cards,” said Fawaz.
If you’re looking to get out of credit card debt, opening a new credit card may not be your first thought, but a balance transfer credit card may be able to help.
“So a lot of credit card companies offer this. Let’s say you have a credit card with Chase. What Chase will allow you to do, if you have money with a different credit card company, is to transfer your balances from the other credit card companies and what they will do is sweeten the pot for a year or two years. If you transfer it over here we are going to charge you only 6%,” said Fawaz.
While balance transfer cards seem like a good thing, they often set maximum limits on the amount of debt you can transfer, either a percentage of your total credit limit or a set dollar amount. Also, you can not complete a transfer between cards issued from the same bank. Before requesting a transfer, make sure you read the fine print. Additionally, good or excellent credit is often required to qualify for a balance transfer credit card.