Credit card debt could soon get worse with rising interest rates
Credit card debt is up 8 percent from a year ago, with rising interest rates about to make things worse.
Americans are increasingly relying on their credit cards to get by. As Yahoo Finance reports, a recent study found that the average American household has more than $15,500 in credit card debt. The spiraling levels of credit card debt, however, are largely not due to consumers being more frivolous with their spending, but with the costs of basic necessities, such as medical bills, food, and housing, rising faster than incomes. With the Federal Reserve expected to increase interest rates soon, many people carrying large credit card balances could soon find themselves facing even higher monthly bills.
Credit card debt keeps climbing
The Household Credit Card Debt Study by NerdWallet found that in total Americans are carrying $905 billion in credit card debt, which is a significant eight percent increase from one year ago. On average, American households are carrying $15,654 in credit card debt. Combined with the $8.74 trillion Americans owe on their mortgages, the $1.21 trillion in car loans they have, and the $1.36 trillion they are carrying in student loans, it is clear that for many people the overall debt load is beginning to feel a bit overwhelming.
In fact, the reason that credit card debt is up is precisely because other debts and expenses are also up. Medical debt is the main driver behind the increasing credit card debt. The study found that 17 percent of Americans are in debt due to medical expenses and 27 million adults have charged medical expenses to their credit cards. Spending on food and housing is also up 22 and 20 percent respectively and health care costs have risen by 34 percent in the last ten years. In comparison, incomes have failed to keep up, growing by just 20 percent and forcing more people to put basic expenses on their credit cards.
Interest rates could make things worse
Furthermore, the future is likely to get even tougher for people who are carrying large credit card balances. As Forbes points out, the Federal Reserve is expected to increase interest rates this December and to continue increasing them into 2018. Since most variable rate credit cards are tied to the prime rate, which is based on the federal funds rate, that means that many credit card holders will soon be paying even more in interest on their balances.
Struggling to keep up?
For those who are already struggling to keep up, the impending rise in interest rates could be more than they can handle. Instead of getting into an endless cycle of simply trying to make minimum payments, those who are drowning in debt should talk to a bankruptcy attorney. While bankruptcy can sound frightening, in many cases it could be the best way to discharge most debts and help individuals get the breathing room they need to finally rebuild their finances on more solid ground.