With households combating the impacts of inflation, many are contending with the rising problem of credit card debt. Increased prices from groceries to rent means more people are resorting to paying for essential items with credit cards. This unfortunately, has a counter-measure due to borrowing costs, resulting in these households struggling to manage their debt.
Financial planner Bobbi Rebell disputes stereotypes about misuse of credit cards, asserting that the real reasons for rising debts often involve medical expenses or basic groceries.
This trend has caused growing concern for economists and financial planners observing an increase in consumer debt. Experts advise smart credit card spending or even avoiding the debt altogether. If avoidance is impossible, they offer suggestions for mitigating the issue.
Mindfulness in credit card usage could prevent debt before it begins, says Sarah Paulson, a certified financial planner with Valkyrie Financial. If affording necessities is a problem, she recommends exploring alternatives to borrowing, such as monetizing unused items.
Experts advise revisiting and potentially restructuring budgets, considering actual income, necessary expenses and potential cuts. When struggling with increased prices, an emergency fund, if available, may be a better solution than adding to a credit card debt.
Despite the temptation to leave savings untouched, high interest rates from unpaid credit card bills can add significant costs. A study shows that half of Americans are unaware of the true costs of credit card borrowing, with average rates currently at 21.51%.
Finding additional income sources or tapping into savings are preferred solutions, but may not be feasible for everyone. If debt is inevitable, being mindful of interest rates and careful with payments can help manage it. Experts advise paying off high-interest debt before it further burdens your budget due to daily compounding rates.
Moving debt to a credit card with a lower interest rate or consolidating balances can also lower interest rates. As inflation begins to stabilize, the Federal Reserve is expected to reduce its federal funds rate, which affects all borrowing costs, including credit card interest rates.
Financial planner Rebell encourages consumers to stay informed about their lenders' offers, possibly leading to lower interest rates. Proactive negotiation with credit card companies can result in better rates and, consequently, manageable debt in this challenging climate of rising inflation.