Credit Card Debt Crisis intensifies as Households grapple with Rising Inflation and Interest Rates

According to recent reports and data from the Federal Reserve, American households are experiencing financial strain as credit card debt levels continue to rise amid rising inflation and interest rates. In the first quarter of 2024, credit card and auto loan delinquencies reached record highs, with 8.9% of credit card balances transitioning into serious delinquency, up from 8.5% in the previous quarter and 5.87% at the end of 2023. This trend is particularly concerning given the high average credit card annual percentage rate, currently standing at 20.72%. If people carry debt due to rising prices, they could end up paying significantly more in interest and taking longer to repay debts. The rise in balances coincides with the Federal Reserve’s aggressive interest rate hike campaign aimed at combating stubborn inflation, although inflation has since decreased. While the exact reasons for this trend are unclear, possible explanations include depleted savings from the pandemic, high spending levels, job loss and subsequent lower salaries, and expanded eligibility for credit cards due to suspended student loan reporting during the pandemic. Regardless, the situation highlights the significant financial pressures faced by most U.S. households, with low-income Americans bearing the brunt of these impacts. This issue is particularly alarming given the rising interest rates, which could lead to even greater financial hardship for those struggling to keep up with debt repayments.