One of the only benefits of the COVID-19 pandemic was the massive drop in consumer credit card debt. Due to government programs sending money directly to those who needed it and not being able to leave the house for months, people could successfully pay off their credit cards and put money back into the bank.
However, once government assistance came to an abrupt halt, while inflation remained high, many Americans’ credit card debt started to increase. Suppose you are struggling with this same problem. In that case, you can consider credit card debt consolidation, which lets you combine multiple debts from all your credit cards to pay them off simultaneously with one easy monthly payment.
A look at the numbers
According to the Federal Reserve, credit card debt has risen by 15% in the past year. This increase marks the most significant year-over-year increase in over 20 years. Consumers are holding onto $930 billion in credit card debt as of November 2022, nearly equal to the all-time high reached in the fourth quarter of 2019.
Those in the lowest income areas are holding onto even more debt than before the pandemic, showing how hard the pandemic hit the most vulnerable community members. On the flip side, the most affluent people in the community have, on average, $300 less in credit card debt than they had pre-pandemic.
Experts think the rise in consumer credit card debt is due to many factors, with inflation being the primary cause. However, as people feel more comfortable traveling the world again, inflation seems not a big enough deterrent for people to avoid vacations or other consumer goods.
On the bright side
Overall debt, which includes all types of debt, is over $2.3 trillion higher than at the end of 2019. Even though that sounds scary, the good news is that delinquencies are down. Delinquencies happen when someone is more than 30 days past due on a debt, which can significantly impact credit scores and ultimately result in repossession, foreclosures, or lots paid in interest. Even though the debt is higher, the percentage of people with debt in collections is lower than before the pandemic.
The decrease in delinquencies can be because of higher savings accounts on average than before the pandemic or increased focus on making on-time payments to avoid unnecessary interest charges. Whatever the case, the news is good.
What to expect in 2023
Things seem to be looking up in 2023, assuming the Feds get control of the record inflation as quickly as possible. They have increased interest rates six times throughout 2022, with more increases coming throughout the fourth quarter and into the first quarter of 2023.
When inflation gets under control, consumers’ overall cash flow and spending power increase, and experts from Goldman Sachs predict that there will be an increase of about 4.2% in household discretionary cash flow. Many people have feared an incoming recession, but if this news proves accurate, we might be able to avoid one successfully.
If you struggle with credit card debt, now might be the perfect time to make plans to eliminate debt and grow your savings or investments. Make a budget and stick to it to free up money each month to make debt payments. Focus on smaller debts or high interest cards before moving on to the next. Or, consider options like debt consolidation loans to pay off all your debts simultaneously.
Whatever you choose, be prepared for just about anything in 2023. If we have learned anything from the past few years–expect the unexpected.
Name: Michael Bertini
Job Title: Consultant
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