Mississippi Consumer Help Blog
Americans are in record debt – for the first time ever, credit card debt passes $1 trillion! Along with the skyrocketing of the country’s national deficit, a debt crisis is hovering over the private sector. New information shows Americans are more in debt now than at any point in history. According to the Federal Reserve, for the first time in our nation’s history, American credit card debt flew past the $1 trillion mark, with $250 billion in the last two years alone and $45 billion in the last quarter alone. Just to put this into context, American credit card debt is now larger than the GDP of all but 17 countries on earth. Wow.
Even though some may think that reckless spending habits might play some role in this, the reality is that more and more Americans are being forced into credit card debt trying to pay off monthly living expenses. Over the last two years, as inflation has taken hold of the economy, the cost of necessary goods has hit the roof. A newly released report from Moody’s shows that the average American family pays $709 more now each month for the same goods they were purchasing in 2021. With around 60% of Americans living paycheck to paycheck and 54% saying they wouldn’t be able to cover an unexpected $400 payment, it only takes a small monthly change to drive people into debt just to make ends meet. Another side effect of the Fed’s continuous rate hikes, the average credit card interest rate is now around 20% (which is the highest mark on record), translating to the cost of that debt being even higher.
Keep in mind that one of the fastest ways to negatively impact your credit score is to max out your credit card debt. It doesn’t matter that you’re paying on time nearly as much as it matters that you have maximized all available credit limits. If you are only paying minimum credit card payments monthly, you will be paying on that credit card debt for years and years. It will take a long time to ever pay down this debt, even enough to the point to regain traction on your credit score. One small change in your income or overall financial situation can then cause late payments, which tank your credit score even further. Without a decent credit score, lenders are unwilling to provide you with debt consolidation loan options. Or if they do, they are at enormous interest rates. Many consumers, over the past two or so years, have consolidated their credit card debt only to then again run up the credit cards that were paid off in the consolidation.