Communicated Content – It is fair to say that financial strife has been a major theme of 2022. At the end of 2021, inflation was high. People were still recovering from the financial impact of the pandemic. And yet it seemed like things would come under control again.
However, that has not happened. In fact, things have gotten worse for many people. This can be seen in the fact that credit card balances are skyrocketing. Americans already had a fair amount of credit card debt, and that has gotten much worse.
There is a reason that people are turning to credit cards. Credit cards are the most common type of revolving credit, and that is exactly what people need. In an ideal world, people would take out short-term loans and pay them back on time. But in the real world, we need to know that the funds are available, as we struggle to make ends meet at the end of every month.
Let’s look into why credit card balances are skyrocketing in 2022.
Inflation vs. Wages
You may be sick of hearing about inflation. It is all anybody has talked about for the past year. We all know that it is happening and many of the reasons why. What you may not know is that wages have been rising too.
Yes, while we’ve been focused on the rising cost of basic goods and the stagnant minimum wage, people have been earning more. Significantly. Average hourly earnings are up 5.1% from a year ago. This is good news, but there’s a reason we don’t hear about it.
The problem is that inflation has risen at much higher rates than expected. The price of goods has gone up at a rate of 9.1% from last year. In other words, while people have technically received wage increases, income has not kept up with prices. Most people are far from even standing still, even if they now earn more.
It’s Not Just Inflation
Inflation is an easy reason to give for high credit card balances, but it is not the only one. In other aspects, prices have been going up for a while now. Specifically, the cost of housing.
If you want to buy a home today, you may pay a hundred thousand dollars more than you would have two years ago. Furthermore, your mortgage rate will be higher, leading to high monthly payments.
Rent has not increased at quite the same rate, but it is rising rapidly. If you’re lucky enough to be able to stay in your rented apartment, you will have seen moderate increases. But if you’ve had to find somewhere new to live, you will have had to accept much higher rent than you would have a year ago.
Because of this, many people were already struggling to make their budgets work before the inflation crisis.
Credit Card Rates
There is another significant factor causing credit card balances to rise. Credit card rates are at a record high. Banks are charging more interest than ever before, with the justification that the federal benchmark is particularly high.
If you were using a credit card two years ago, when the federal benchmark was close to zero, this justification may not sound quite right. After all, credit card rates did not plummet back then. For this reason, consumer watchdogs are investigating the high-interest rates. It looks very possible that banks have raised interest rates to record highs simply because they can.
The reality is that people are extremely reliant on credit right now. They have no choice but to accept whatever rates are offered. Furthermore, it’s not always easy to do math. For many people, the difference between 16% and 17% in interest is difficult to conceptualize. It’s certainly tough to do so without a calculator in front of you and a good idea of how much you might spend.
Banks understand this, which is why they don’t provide a comprehensive and clear-cut demonstration of how much interest you may have to pay, even as they play up the risk involved in giving out credit cards.
Credit card balances are skyrocketing for a number of reasons in 2022. While wages are high, inflation is higher. Housing is less affordable than ever, and credit card providers are charging high rates. We have yet to see how this will affect the American public in the long run.
