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Credit card debts soars while savings plummet

On Behalf of | Mar 13, 2023 | Consumer bankruptcy |

Credit card debt is growing at an alarming rate in Tennessee and around the country. In the final quarter of 2022, the amount of money Americans owe to credit card companies increased by more than $60 billion to $986 billion. In January 2023, that figure rose by a further 11%. This increased credit card spending worries financial analysts because it comes at a time when intertest rates are rising and inflation is pushing up the prices of basic necessities.

Boom to bust

Many Americans now find themselves using credit cards to pay for food and utilities only a year after their financial situations appeared to be quite rosy. Stimulus funds, pay raises a rebounding economy and travel restrictions that delayed the purchase of big-ticket items gave consumers enough money to meet their obligations and pay down their debts. By the first quarter of 2021, credit card debt in the United States had fallen from a pre-pandemic high of $927 billion to just $770 billion. This debt reduction coincided with the highest personal savings rate ever recorded, but those halcyon days now seem to be well and truly over.

Rising balances and delinquencies

A quarterly report from the New York Federal Reserve Bank reveals that credit card companies are responding to this surge in spending by increasing both credit limits and interest rates. Experts believe that a disaster is looming and a surge in bankruptcy filings is inevitable, and rising delinquency rates make this prediction seem credible. The share of Americans with credit card bills that are at least 30 days past due rose to 5.9% in the first quarter of 2022, and 90-day delinquencies rose to 4%.

No end in sight

The financial challenges facing Americans are concerning because there seems to be no end in sight. Inflation remains stubbornly high, which means interest rates are unlikely to fall in the near future. The speed with which Americans have gone from having record savings to carrying record debt suggests that the problem will get worse before it gets better, and rising credit card delinquency rates are particularly worrying because they are often the first sign of an impending consumer crisis.