Americans are Struggling To Pay Credit Card Fees on Time
An ever-growing number of US consumers are having a hard time paying off credit card fees monthly as inflation devalues people’s money and interest payments snowball. Low income earners shoulder these burdens in particular.
Per December data from Bankrate, about 46% of credit card holders do not fully pay their fees each month. This represents a 39% increase from 2021. About 43% of credit card holders are unaware of the interest rate charges on their cards.
“People may not be fully aware of how expensive credit card debt—or other alternative loans—are, and that interest on these loans compounds,” Michaela Pagel, a Columbia Business School professor, told Bloomberg.
“If somebody rolls over $5,000 of credit card debt over five years, it balloons into $12,441 at 20 percent interest.”
Higher income earners are more likely to pay their credit card fees each month. Pagel called attention to how it is getting more expensive for people to buy goods and services that they need.
In addition, he noted that the rising living costs can partially be attributed to credit card obligations. If wages remain stagnant, households will likely continue struggling to meet such obligations.
Among individuals making less than $50,000 annually, only about 45% were able to wipe out their credit cards each month, whereas only 63% of people making over $100,000 were able to wipe away their credit card debts, per Bankrate.
Currently, credit card interest rates generally hover above 19%, which represents an all-time high rate. Per Greg McBride, chief financial analyst at Bankrate, rates are expected to go higher in 2023.
Interest rates on credit cards are generally correlated with the Federal Reserve’s benchmark interest rate changes. McBride predicts that the average credit card annual percentage rate (APR) may hit 20.5% by the end of 2023 if the Fed follows through with additional rate hikes in the near future.
“The important takeaway for current cardholders is that another one percentage point in rate hikes by the Fed means your rate will move up by one percentage point,” he stated.
Overusing credit cards have negative impacts on an individual’s credit score. For one, individuals carrying a credit card balance will likely have to put up with higher interest charges. If an individual’s credit card balance becomes unwieldy and they end up missing a payment, it can ding their credit score.
Since 2022, credit card delinquency has been climbing upward. It’s expected to increase to 2.6% by the end of 2023, which would represent a 20.3% year-over-year increase.
America’s middle class is clearly facing a financial pinch. Indeed, there needs to be a degree of personal responsibility exercised in matters concerning finances. However, what we see taking place in the US and many other countries in the West are the signs of a degraded political culture that encourages fiscal irresponsibility at all levels of society.
The US needs to exercise fiscal restraint in the halls of Congress all the way down to the household level. Full stop.