By Brad Polumbo
Inflation is still not abating and is one of the top concerns for Americans right now. But we just learned about another way rising prices are hurting families — pushing them into massive amounts of credit card debt.
“More Americans are racking up credit card debt as inflation drives up the cost of groceries, utilities and other basic necessities,” reports CBS News. “60% of credit cardholders have had funds on their cards for at least a year, up 10% from 2021.”
“59% of Americans who make less than $50,000 a year have a month-to-month credit card balance,” the report states. “The percentage drops slightly to 49% for those earning between $50,000 and $80,000 and drops back down to 46% for people making $80,000 to $100,000 per year.”
This is a serious problem for many families.
“It’s even harder to get out of debt when it’s spending on basic necessities that got you into this position in the first place,” Ted Rossman, an analyst at Creditcards.com, told CBS. “These expenses are not so easy to avoid.”
Americans now owe $887 billion in credit card debt, according to the Federal Reserve Bank of New York. That is 13% more than in 2021!
Credit card debt is not to be scoffed at. Because of the way it’s structured, it can quickly become exorbitantly expensive, ultimately costing a lot more than the original purchases.
“Credit card debt accumulates when you don’t pay off your credit card in full at the end of each billing cycle,” explains NationalDebtRelief.com. “When the balance is carried over to the next billing period, interest is accrued in the form of the Annual Percentage Rate (APR). The APR is the percentage of interest charged on purchases, cash advances and balance transfers and is made up of. This means that interest rates rise above interest rates and the longer it takes you to pay off a debt, the more you will owe.”
The website provides an illustrative example of 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’ll end up paying back more than $30,000 — and that takes almost 30 years!
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With inflation eroding their paychecks and skyrocketing their expenses, many American families are facing this potential scenario. And it’s 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 created trillions of dollars in deficits through profligate “boost” spending. The inevitable result of this flood of dollars chasing the same number of commodities (or even fewer numbers) would be higher and higher prices. And that’s exactly what happened.
But as the credit card debt problem shows, the second-order consequences of the government’s bull-in-a-china-shop intervention play out well beyond mere price hikes. It will take many years of study before we understand all of the different ways in which these reckless policies are hurting American families, but one thing is clear: the bill that eventually falls will be a big one.
Brad Polumbo (@Brad_Polumbo) is a libertarian journalist and political correspondent at the Foundation for Economic Education.
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