In response to rising prices, the Fed has made a number of changes. interest rate increases over the past year in an effort to tame the red hot inflation rate—which currently stands over 7%, a far cry from the target 2% rate.
Although some progress was made, November saw a 7.1% year-over-year rate rise compared to 7.3% predicted by analysts. However, consumers still need to change their spending habits in order to pay their basic expenses.
Many are choosing plastic.
Americans are turning to credit cards for financial security
A new reportBankrate reported that 35% American adults have a gun. credit cardFrom 29% to 46% last year, credit cardholders are carrying more debt than 39%.
What’s more, apart from higher debt balances, 43% of U.S. adults that carry balances don’t know all of their interest rates which could lead to a vicious debt spiral if not managed carefully.
The current situation is the average credit card interest rateCreditcards.com says that it is 20.04%
“Most people get into credit card debt either because of an emergency expense — something with their health, their home or their car–or simply because day-to-day expenses cost more than they’re bringing in,” says Bankrate.com Senior Industry Analyst Ted Rossman. “These challenges have become especially significant due to high inflation and higher interest rates.”
Why consumers need to be cautious about using credit cards
Sometimes, there’s no option but to lean on a credit card to cover your expenses in a pinch. Overusing this payment method could pose risks.
“No one really chooses to be in credit card debt, however. If you don’t have the money and you need groceries or gas, those expenses could land on a credit card,” says Rossman. “That’s a debt cycle that’s easy to get into and hard to get out of.”
Overusing your credit cards can lead to…
- Steady interest rates: Interest rates on credit cards hitting record levelsA credit card balance can lead to high interest rates that could make it more difficult to pay off your debt.
- A lower credit score means: Your credit scoreIt is calculated by taking into account a number of factors. This includes your payment history, balances, and other factors. You could be penalized if you miss a payment or spend more than 30% of the credit limit. credit score.
Alternatives to high-interest credit card
If you’re struggling to cover your daily expenses, a credit cardIt can be a quick fix. If you want to avoid this, debt spiralIf you are looking for long-term solutions, it is worth considering. You might consider these alternatives to credit cards:
- You can boost your emergency fund Without an emergency fundThe smallest unexpected expenses or an increase in regular expenses can cause financial problems. You should aim to put aside a small amount each month for an emergency fund. Once it’s all said and done, experts say your emergency fund should be enough to cover three to six months worth of your regular expenses. You may need to review this amount to see if there are any higher inflation rates.
- Are you looking for ways to increase income? Assisting others with a side hustleAsking for a raise at your workplace can offset the impact of rising prices. Asking your employer to review your compensation and adjust your performance for positive responsibilities or additional responsibilities can help increase your income. If the answer is “not right now,” consider how you might use your free time and skillset to start a lucrative side business.
- You are looking to reduce your expenses. If you’re spending more on groceriesIf you are looking for ways to reduce your household expenses, gas, or rent, it might be worth examining your budget. Maybe that’s spending less on dining out to account for higher gas prices or cutting out one of your streaming subscriptions. Making small adjustments to your spending can make a difference over time.
“It’s easier to get out of credit card debt if it was due to a one-time shock, because then you can address that with a 0% balance transfer card or a personal loan or a debt management plan offered by a reputable nonprofit credit counseling agency,” says Rossman. “If your finances are upside-down every month, that requires a more systemic solution.”
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