Americans Struggle with Rising Credit Card Debt Amid High Cost of Living: Experts Say Lower-Income Earners Hit Hardest

Americans are facing a growing credit card debt crisis as they struggle to keep up with the rising cost of living, with experts warning that those who earn the least are the hardest hit.

According to a recent report from the New York Fed, total credit card balances have increased by 5.8% from a year ago, reaching a staggering $1.14 trillion. While delinquency rates on consumer finance loans and retail cards have fallen, credit card delinquency continues to rise.

Many Americans are using credit cards not for luxury items, but for necessities like groceries and gas. However, with the average interest rate for those with a credit card balance sitting at 22.76% in May, many find themselves trapped in a cycle of high-interest debt.

The high cost of living, particularly in areas like housing, is exacerbating the issue. Inflation, as measured by the Consumer Price Index, is on the rise, with shelter costs making up a significant portion of the increase.

The Federal Reserve’s efforts to combat inflation by raising interest rates are also impacting credit card debt, with some economists arguing that high rates are fueling economic inequality. The Fed may consider cutting rates in the future to address cooling inflation data.

Additionally, the lack of competition in the credit industry, coupled with record-high APR margins, is driving consumers into persistent debt and delinquency. Financial tech products like “buy now, pay later” options are also contributing to the problem, as they are not regulated in the same way as traditional credit cards.

Lower-income individuals, who are most likely to suffer from high credit card rates, only account for a small portion of consumer spending. However, the political and social implications of their financial struggles are significant, with growing pressure to improve economic well-being.

As the credit card debt crisis continues to escalate, it remains to be seen how policymakers and financial institutions will address the issue and provide relief to those most affected.