‘Forcing them into more debt’: Are inflation & interest rate hikes hurting credit card debt?

Are you feeling the effects of inflation and interest rate hikes from the Federal Reserve?

You’re not the only one.

The Fed has raised interest rates 10 times in the last year. Experts are predicting the Fed will pause its hikes on interest rates this week, but we may not actually see relief, CNBC reported. Those rate hikes have pushed some into more debt.

While inflation has started to cool, higher prices are tightening household budgets, CNBC reported.

Average credit card interest rates are at an all-time high, purchasing power has been lost when it comes to buying a home, car payments are larger, and interest rates are higher for new federal student loans.

However, the top high-yield savings accounts are offering rates over 5% — the highest since 2008’s financial crisis.

How do interest rate hikes affect you?

A WalletHub survey found two in five people said interest rate hikes from the Federal Reserve are “forcing them into more debt” instead of paying it off.

One in four said if the Fed continues raising interest rates, their job is at risk.

And 56% said they aren’t ready — financially — for a recession.

“Over three times more people with low income say they are not financially prepared for a recession, compared to people with high income,” Delaney Simchuk, a WalletHub analyst, said in a statement.

Because of rate hikes from the Federal Reserve, consumers will pay about $33.4 billion in interest charges on their credit cards over the next year, according to WalletHub. If rates are raised again, it’ll cost consumers an additional $1.7 billion.

Experts say there’s a 31% chance that the Fed hikes interest rates again.

Inflation is affecting credit scores

A WalletHub study found 35% of consumers said inflation affected their credit score.

“Which is a bad sign because it indicates that consumers are becoming delinquent on existing debt,” Simchuk said. “Falling behind on existing debts makes it harder for consumers to qualify for new loans and lines of credit, which could make debt repayment less expensive, and delinquency only increases the cost of what you owe.”

Consumers added $179.4 billion in new credit card debt last year.

In the first quarter this year, consumers paid $24 billion in credit card debt. That’s the second smallest paydown of the first quarter in the last decade.

“Unfortunately, a smaller-than-expected first-quarter decline in credit card debt is a harbinger for a lot more debt to be added throughout the rest of the year,” Simchuk said.

The average household has $9,654 in credit card debt.

How can you pay down your debt?

• Make a budget and follow through.

• Build an emergency fund.

• Figure out your debt repayment system, such as the avalanche or snowball methods.

• Evaluate your work situation.

• Consider debt consolidation options.

The top 20 cities

These are the top 20 cities with the largest year-over-year increase in credit card debt, according to WalletHub.

1. Santa Clarita, CA

2. Moreno Valley, CA

3. Chula Vista, CA

4. Riverside, CA

5. Glendale, CA

6. Nampa, ID

7. North Las Vegas, NV

8. Fontana, CA

9. Henderson, NV

10. Stockton, CA

11. Rancho Cucamonga, CA

12. Port St. Lucie, FL

13. Huntington Beach, CA

14. Anaheim, CA

15. Oxnard, CA

16. Pembroke Pines, FL

17. New York, NY

18. Peoria, AZ

19. Bakersfield, CA

20. Fort Worth, TX

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