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U.S.: Credit Card Debt and Inflation

Categories : Cash facilitates budgetary control, Cash generates security, Cash is available to all users
August 29, 2022
Tags : Card payments, Cash substitution, Digital payments, Inflation, US
Many U.S. customers are racking up credit card debt to make ends meet during the cost-of-living crisis.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Highest Increase in U.S. Credit Card Debt Since 1999

During the Covid-19 pandemic, U.S. consumers spent less and paid down their credit cards. Consumers’ credit card debt is increasing as the country returns to normalcy amid a rapid increase in the cost of living. U.S. inflation peaked at 9.1% in June, its highest level since the 1970s.

A recent report from the Federal Reserve Bank of New York (FRBNY) found that U.S. credit card balances reached $890 billion at the end of June 2022, after a 13% year-over-year increase, the largest since 1999. Aggregate limits on credit card accounts stand at $4.22 trillion, the most significant growth over ten years.

“Some of this just reflects more card usage, more e-commerce, more digital payments, people using cash less. In some respects, higher credit card balances can reflect the growing economy. You just don’t want it to grow so much that people are falling behind [and] carrying expensive debt,” said Matt Schulz, chief credit analyst for Lending Tree.

Credit Card Issuers Nudge Customers to Purchase Mindlessly

While banking officers recommend using credit cards for budget management, customers tend to take on more credit card debt when issuers offer zero-percent interest-rate specials, travel-related bonuses, rewards, loyalty programs, and cashback on purchases.

U.S. customers are spending more impulsively now, thanks to online shopping and digital payments. A staggering 70% of respondents to a Slickdeals survey spent more impulsively using their smartphones while lying in bed.

Credit Card Debt: Bingeing and Surviving

Some customers are using credit cards to travel and dine out more.

Others are relying on credit cards and payday loans to make ends meet.

Credit Card Debt Build-Up

Generation Z consumers, people with low credit scores, and millennials are racking up credit card debt at higher rates than the broader population (see Chart 1 below). FRBNY researchers found that credit card and auto loan delinquency rates are also increasing, particularly in lower-income areas.

Chart 1. United States: Credit Card Balance Increases, 2022Q2 (year-over-year)

Source: VantageScore.

#Cashstuffing is Trending on TikTok

Some people, however, are resorting to cash to manage their budget better. “Cash Stuffing,” a trend picking up pace among Gen Z, is a budgeting method where people are stuffing away cash in envelopes for various needs such daily expenses, personal savings, emergency purposes, holiday trips, shopping sprees, and so much more.

With each paycheck, they make separate deposits in these labeled envelopes, making it a unique and innovative way to meet ends.

This post is also available in: Spanish