Americans have been charging more to their credit cards since the pandemic— now you might be wondering how that impacts our economy and how you can get out of debt.
LITTLE ROCK, Ark. — It’s no secret that the pandemic and inflation have hit our wallets, and as a result, Americans have been charging more to their credit cards— billions more.
This has led to a new record high of nearly one trillion dollars, ($986 billion) in credit card debt nationwide. This has been rising by $61 billion in the last quarter of 2022, according to the Federal Reserve Bank of New York.
While overall FICO credit scores continued to trend up through 2021, according to data company Experian, many scores in southern states– including Arkansas are actually worse than the national average.
What does that mean for our economy? And what’s the best way to get out of debt? Economists and financial planners have some ideas of how we got to this point.
Chief Economist at UALR Michael Pakko explained, “From the beginning of 2020, through the beginning of 2021, credit card debt was actually declining, and so now it’s been rising again. And so we’re now in the fourth quarter of last year, it finally surpassed the pre-pandemic peak.”
GenWealth Financial Planner, Scott Inman, agreed that the pandemic’s lasting impacts have been influencing current economic trends.
“Americans are paying more for everything, and they’ve tapped in, in many cases now depleted their savings. And so they feel like they have no place to turn but credit card, swiping the credit card to pay for life,” he explained.
So on average nationally, plastic cards have been carrying more charges— but what does all of this debt mean for the economy?
Pakko explained, “Interest rates are rising, and that’s going to affect business investment and consumer spending decisions. But so far, consumers still seem enthusiastic about spending and buying things and willing to run up their credit card debt. So that indicates a level of optimism that perhaps is unwarranted but we’ll see.”
As credit card debt climbs across the country, Inman said that you might want to be careful before you rely on opening up another card to do more spending.
“I think that you know, the best advice I can give is never use a credit card to pay for a want… the average interest rate right now we’re told is over 19%… Find those introductory offers, those 0% introductory offers where you can move balances for a short period of time, but don’t do it unless you have a plan to snowball and really attack that debt and get rid of it before that 0% offer ends,” Inman advised.
As for what’s next, he said that there’s no guarantee, but Inman added that planning for what you can control is key.
“What matters most is not the economy, but your economy. And figuring out your budgets, your expenses– keeping them low, increasing your income, finding a way to manage your cash flow and to invest and save for the future is more important than what’s going on in 2023 in the US economy,” Inman said.
Pakko also added that even as inflation slows— the high prices won’t go anywhere any time soon.