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By Brad Polumbo
Inflation continues unabated, and it’s one of Americans’ top concerns right now. But we’ve just learned of another way rising prices are hurting families, driving them into huge credit card debt.
“More Americans are racking up credit card debt as inflation drives up the cost of food, utilities and other essentials,” CBS News reports. “Sixty percent of credit card holders have carried balances on their cards for at least a year, up 10% from 2021.”
“59% of Americans earning less than $50,000 a year carry a credit card balance from one month to the next,” the report notes. “The percentage drops slightly to 49% for those earning between $50,000 and $80,000 and drops again to 46% for people earning between $80,000 and $100,000 a year.”
This is a serious problem for many families.
“It’s even harder to get out of debt when it comes to spending on necessities that got you into that position in the first place,” Creditcards.com analyst Ted Rossman told CBS. “These expenses are not easy to avoid.”
Americans now owe $887 billion in credit card debt, according to the Federal Reserve Bank of New York. That’s up 13% from 2021!
Credit card debt is not something to be taken lightly. Due to the way it is structured, it can quickly become exorbitantly expensive and ultimately cost much more than the original purchases.
“Credit card debt accrues when the credit card is not paid in full at the end of each billing cycle,” explains NationalDebtRelief.com. “When the balance is carried over to the next billing period, interest accrues as an annual percentage rate (APR). APR is the interest rate that applies to purchases, cash advances and balance transfers, and it accumulates. This means that interest grows on interest and the longer you take to repay a debt, the more you will owe.”
The website provides an illustrative example that shows how quickly credit card debt can spiral out of control. If you borrow $10,000 on a card with a 25% interest rate and only make the minimum payments, you will eventually have to pay back over $30,000, and it will take almost 30 years!
Fueled by inflation eroding their paychecks and causing their spending to skyrocket, many U.S. families are facing this potential scenario. And it is important to remember that this is not an abstract economic phenomenon. The federal government caused inflation through its reckless fiscal and monetary policies during the pandemic.
It printed trillions of new dollars out of thin air and racked up multi-trillion dollar deficits in wasteful “stimulus” spending. The inevitable result of this flood of dollars chasing the same number of goods (or even a smaller number) was always going to be higher prices. And that is exactly what has happened.
But, as the credit card debt problem shows, the second-order consequences of government interventions in a Chinese store are playing out far beyond price hikes. It will take many years of study before we fully understand all the ways in which these reckless policies are hurting American families, but one thing is clear: the bill ultimately paid is going to be expensive.
Editor’s note: This article has been republished with permission from FEE.
Foundation for Economic Education (FEE)