Credit card debt is not something you should do at any time. However, right now is perhaps the worst.
According to Bankrate.com, the Federal Reserve’s war against inflation has pushed up the average credit card APR (annual percentage rate) to 19.04% since November 9.
This is the highest rate Bankrate.com has ever recorded since 1985 when it was first created. It surpasses the previous record of 19%, which was set in July 1991.
This milestone is yet another example of how the Fed’s historic inflation-fighting campaign drives up Main Street borrowing costs. The mortgage rates have more than doubled in the last year, reaching 20-year highs. This has forced many potential buyers out of the housing market.
According to Bankrate.com, the national average APR on credit cards has increased by 2.74 percentage points this year. This is the largest single-year increase, according to Bankrate.com.
According to Federal Reserve research, the spike is due to credit card balances rising sharply in response to high inflation. According to industry experts, shoppers will rely heavily on credit cards this holiday season to purchase more expensive gifts.
Ted Rossman, the Bankrate senior industry analyst, stated that it is difficult to build wealth when you pay this much each month.
Even at lower interest rates, credit card debt can be very costly.
According to Bankrate.com, to repay $5,000 of credit card debt at the national average rate of 16.3% at the beginning of the year it would take 185 months worth of minimum payments. This would have resulted in $5,517 in interest. It will take 191 months to pay the $5,000 credit card balance and $6,546 interest at the current rate.
The good news is that Americans pay their credit card bills, despite the high level of inflation. Due to the savings that many people made during the Covid-19 pandemic, defaults and delinquencies are extremely low.
Unfortunately, this could change rapidly if there is a surge in layoffs.
Meta, the Facebook owner, has announced that it will reduce more than 11,000 jobs. Lyft also said it would cut 700 jobs while Redfin announced almost 900 layoffs. Amazon and others have also said that they will freeze certain hiring.
Rossman stated that there is only one way to reduce unemployment.
Rossman suggests that Americans with credit card debt should consider taking out a personal loan at a lower rate or transferring their balance onto a 0% balance transfer card.
Rossman stated that there has been a lot of competition in this area and that some 0% balance transfer cards offer consumers the opportunity to avoid interest for up 21 months, giving them time to pay off their balance.