The ongoing surge in inflation is pushing households to rely more on credit. Simultaneously, the Federal Reserve is maintaining a high fed funds rate in an attempt to curb spending and contain the inflation. This policy, which directly impacts interest rates, has inadvertently increased the borrowing costs for many, including credit card holders.
However, the connection between the Fed's strategies and credit card interest rates remains unknown to many Americans according to a recent survey. As of May, credit card interest rates rested at an average of 21.51%, a significant increase compared to pre-inflation times when the average hovered around 14.50%.
The survey by LendingClub disclosed that around half of the populace is unaware of how the fed funds rate affects their credit card interest rate. Additionally, 47% don't know their credit card's current APR. This ignorance has severe consequences; the inability to meet the high costs of goods and services forced more than a third of Americans to depend heavily on their credit cards. Such reliance has led to total credit card balances exceeding a whopping $1 trillion.
Mark Elliot, chief customer officer at LendingClub, observes that while consumers remain unaware of the increasing costs, credit card companies remain content. As more consumers accrue debt and borrowing costs compound, more and more Americans are defaulting on their payments, leading to the highest US credit card delinquency rates in the past 12 years, as per data from the Federal Reserve Bank of New York.