Americans are more reliant on credit cards than ever before. In fact, according to the Federal Reserve’s latest Survey of Consumer Finances, 53% of American households now use a credit card for most or all of their purchases.
Credit card debt becomes a slippery slope quickly, leading to interest rates, penalties, and potentially bankruptcy. So before you need to start looking up credit card debt forgiveness, you should first understand how we got to this point and what you can do to stop yourself from going into debt.
Why Americans are more reliant on credit cards now
There are a few reasons Americans are more reliant on credit cards now, but the two main reasons are job insecurity and inflation.
When the COVID-19 pandemic hit in 2020, many people lost their jobs. This led to a lot of Americans who suddenly had a drastic reduction in their income and little help from their creditors. Because of this, many began to rely on credit cards as a way to keep up with their expenses while hoping for new opportunities. Unfortunately, maintaining the credit card balances without paying them off led to interest accruing, causing the balances to rise further and making it more difficult to get the cards back to $0.
Inflation is a problem that affects everyone, but it’s been particularly hard on low-income families who struggle to keep up with the rising cost of food, transportation, and other essentials. As a result, many low-income Americans are using credit cards as their only way to access affordable goods and services.
What can you do to stop yourself from going into debt?
The best way to stop yourself from going into debt is to start by understanding the factors driving it.
Here are a few things you can do to help:
- Be aware of your spending. Make a plan for where your money is going and track it to see where you’re overspending.
- Understand how interest works. If you’re not paying off your debt in full every month, the interest will quickly add up and become a problem due to compounding.
- Build a better credit score. A good credit score will help you get lower interest rates on your loans and make it easier to borrow money in the future.
- Manage your debt responsibly. If you can’t pay off your debt in full each month, try to spread the payments out over a more extended period of time to lessen the impact of interest on your total debt.
- Create a budget and stick to it. This will help you understand where your money is going and what needs to be cut back in order to save more.
- Set rules about how much credit card debt you’re willing to take on. There’s no need to borrow more than you can handle. If you can’t afford the cards right now, don’t get them.
The bottom line
Whatever the reason, it’s essential to be aware of the potential dangers of credit card debt. If you’re not careful, it can quickly spiral out of control and lead to interest rates, penalties, and even bankruptcy. So before you start using your credit card more frequently, make sure you understand how to use it responsibly and keep your debt under control.
Name: Michael Bertini
Job Title: Consultant