How does inflation impact credit card debt? Experts weigh in
Inflation has been steadily rising for the past few months, jumping from 2.4% last September to the 3% rate seen in January. Unfortunately, that inflation leads to rising prices — and, often, more money spent on credit cards. It can also lead to higher interest rates, too.
"It can further push borrowers into a continued cycle of ongoing debt," explains Kim Chambers, credit card product manager at Georgia's Own Credit Union.
If inflation keeps rising, it will undoubtedly impact credit card debt across the country. Below, we'll explain how you might see that play out (and what to do about it).
Start tackling your credit card debt here today.
How does inflation impact credit card debt?
Rising inflation trickles down to consumers by forcing more into using credit cards and other borrowing products on everyday expenses. In fact, in the fourth quarter of 2024, when inflation started reversing course, credit card balances grew by $45 billion.
"While some discretionary spending may be delayed, essential expenses like gas, groceries, and utilities can't be avoided," says Jennifer Oliver, president/CEO of Rize Credit Union. "When inflation outpaces income growth, many people turn to credit cards to cover the gap, resulting in balances creeping up month after month."
The problem compounds when inflation remains high and you have to put necessary items on credit cards for an extended period of time. "It can quickly spiral out of control, creating more debt," says Cynthia Campos Delgado, a financial advisor and founder of Campos Wealth Management. "It becomes a never-ending cycle."
Get help with your rising credit card debt now.
Credit card rates could increase
What makes inflation even worse — at least when it comes to credit cards — is that it often leads to higher interest rates as well.
"Inflation doesn't just raise prices; it hikes interest rates, too," says Howard Dvorkin, chairman of Debt.com. "That credit card that once charged 18% interest might now be up to 22%. That's because inflation eats into the profits of credit card issuers just like it eats into your household budget."
David Johnston, managing partner of Amwell Ridge Wealth Management, calls it a "perfect storm" — one where you're forced to charge more to credit cards, but also pay more in interest on top of that.
"It leaves more consumers struggling to pay off their balances each month," Johnston says. "Carrying a balance accrues steep interest charges, driving up minimum payments and making it even harder to break free from the cycle of debt."
Alternatives and solutions
Fortunately, if inflation is hitting your household hard, you have options. For one, you can switch cards before charging that next purchase.
"Research lower-interest rate credit cards," Chambers advises, "Or transfer balances to 0% offers."
You can also look to alternative card issuers — like credit unions or online banks, which may offer lower rates, or explore other borrowing options.
"There are better alternatives than relying on high-interest credit cards," Oliver says. "A lower-rate credit union credit card, a fixed-term signature loan, or a home equity line of credit can provide more affordable borrowing options."
The best option is to use cash, though, so if you don't have a solid emergency fund saved up, start stowing away cash now just in case inflation keeps rising.
Use debt relief if needed
And if you do find yourself in a vicious cycle of credit card debt due to high inflation, there are ways to get out. Consulting a financial advisor or credit counselor is a good place to start, or you can seek debt relief. This includes things like debt consolidation, debt settlement, debt negotiation, and even debt forgiveness in certain circumstances.
"If your personal debt starts soaring because of inflation, you need a debt professional to help you," Dvorkin says. "This isn't something you can DIY. It's akin to your physical health. If you're keeping your blood pressure in check with diet and exercise, then no need to worry. But if it jumps 50 points, you probably need a prescription to bring that back down."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNBC
30-05-2025
- CNBC
3 key money moves to consider while the Fed keeps interest rates higher
In minutes released this week from the Federal Reserve May meeting, central bank policymakers indicated that an interest rate cut isn't coming anytime soon. Largely because of mixed economic signals and the United States' changing tariff agenda, officials noted that they will wait until there's more clarity about fiscal and trade policy before they will consider lowering rates again. In prepared remarks earlier this month, Fed Chair Jerome Powell also said that the federal funds rate is likely to stay higher as the economy changes and policy is in flux. The Fed's benchmark sets what banks charge each other for overnight lending, but also has a domino effect on almost all of the borrowing and savings rates Americans see every day. Since December 2024, the federal funds rate has been in a target range between 4.25%-4.5%. Futures market pricing is implying virtually no chance of an interest rate cut at next month's meeting, and less than a 25% chance of a cut in July, according to the CME Group's FedWatch gauge. It is more likely the Federal Open Market Committee won't lower its benchmark rate until the Fed's September meeting. With a rate cut on the backburner for now, consumers struggling under the weight of high prices and high borrowing costs aren't getting much relief, experts say. "You don't have to wait for the Fed to ride to the rescue," said Matt Schulz, chief credit analyst at LendingTree. "You can have a far, far greater impact on your interest rates than any Fed rate cut ever will, but only if you take action." Here are three ways to do just that: With a rate cut likely postponed until September, the average credit card annual percentage rate is hovering just over 20%, according to Bankrate — not far from last year′s all-time high. In 2024, banks raised credit card interest rates to record levels, and some issuers said they'll keep those higher rates in place. "When interest rates are high, credit card debt becomes the most expensive mistake you can make," said Howard Dvorkin, a certified public accountant and the chairman of Rather than wait for a rate cut that may be months away, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a lower-rate personal loan, said LendingTree's Schulz. "Lowering your interest rates with a 0% balance transfer credit card, a low-interest personal loan or even a call to your lender can be an absolute game-changer," he said. "It can dramatically reduce the amount of interest you pay and the time it takes to pay off the loan." Start by targeting your highest-interest credit cards first, Dvorkin advised. That tactic can create an added boost, he said: "Even small extra payments can save you hundreds in interest over time." Rates on online savings accounts, money market accounts and certificates of deposit will all go down once the Fed eventually lowers rates. So experts say this is an opportunity to lock in better returns before the central bank trims its benchmark, particularly with a high-yield savings account. "The best rates now are around 4.5% — while that's down about a percentage point from last year, it's still better than we've seen over most of the past 15 years," said Ted Rossman, senior industry analyst at "It's well above the rate of inflation and this is for your safe, sleep-at-night kind of money." Here's a look at other stories impacting the financial advisor business. A typical saver with about $10,000 in a checking or savings account could earn an additional $450 a year by moving that money into a high-yield account that earns an interest rate of 4.5% or more, according to Rossman. Meanwhile, the savings account rates at some of the largest retail banks are currently 0.42%, on average. "If you're still using a traditional savings account from a giant megabank, you're likely leaving money on the table, and that's the last thing anyone needs today," said Schulz. Those with better credit could already qualify for a lower interest rate. In general, the higher your credit score, the better off you are when it comes to access and rates for a loan. Alternatively, lower credit scores often lead to higher interest rates for new loans and overall lower credit access. However, credit scores are trending down, recent reports show. The national average credit score dropped to 715 from 717 a year earlier, according to FICO, developer of one of the scores most widely used by lenders. FICO scores range between 300 and 850. Amid high interest rates and rising debt loads, the share of consumers who fell behind on their payments jumped over the past year, FICO found. The resumption of federal student loan delinquency reporting on consumers' credit was also a significant contributing factor, the report said. VantageScore also reported a drop in average scores starting in February as early- and late-stage credit delinquencies rose sharply, driven by the resumption of student loan reporting. Some of the best ways to improve your credit score come down to paying your bills on time every month and keeping your utilization rate — or the ratio of debt to total credit — below 30% to limit the effect that high balances can have, according to Tommy Lee, senior director of scores and predictive analytics at FICO. In fact, increasing your credit score to very good (740 to 799) from fair (580 to 669) could save you more than $39,000 over the lifetime of your balances, a separate analysis by LendingTree found. The largest impact comes from lower mortgage costs, followed by preferred rates on credit cards, auto loans and personal loans.
Yahoo
29-05-2025
- Yahoo
Mental Health and Your Credit Cards: A "Sad" and "Hopeless" Situation
A survey finds that big balances and steep interest rates are costing Americans much more than money. FORT LAUDERDALE, Fla., May 29, 2025 /PRNewswire/ -- annual Mental Health & Money Survey reveals dramatic increases in negative emotions and behaviors from 2022 to 2025, despite inflation being significantly lower today (2.3%) compared to three years ago (6.5%). The primary culprit appears to be credit card debt. When asked how credit card debt affects their social life, just over 10% of respondents in 2020 said, "I avoid going out with friends or family." This year, that number more than doubled to over 23%. The impact extends to dating as well. In 2022, only 5% reported avoiding dating due to credit card debt. Today, that figure has climbed to over 13%. "Inflation might have dropped, but the damage is done," said Howard Dvorkin, CPA, chairman of "Credit cards are the most widespread form of debt, which means they leave the deepest scars. You can't always see them, but they can linger for years and affect millions of Americans." Survey results from 1,000 Americans further support Dvorkin's concerns, revealing troubling trends in emotional well-being tied to financial stress. When asked how they feel while reviewing their credit card bills and what emotional triggers prompt them to spend, the responses revealed concerning trends. Emotional Distress Linked to Debt Has Surged Since 2022 In 2022, only 6% reported feeling hopeless — by 2025, that number jumped to nearly 22% Feelings of sadness rose from almost 7% in 2022 to 22% in 2025 Reports of losing sleep over debt more than quadrupled, from just over 2.5% to 13% Majority Link Credit Card Use to Emotional Stress and Anxiety 71% of respondents say the convenience of credit cards negatively impacts their mental health 43% feel stressed after using their cards Nearly 40% avoid reviewing their monthly statements due to anxiety 25% admitted to applying for a credit card while already feeling sad or stressed Credit card debt isn't the only financially motivated mental health issue. This year's survey also asked about lingering inflation and student loan debt. Inflation Stress Spills into the Workplace and Daily Life 74% report feeling anxious 23% say it affects their focus at work 7% report being unable to eat The Weight of Student Loan Default: Fear, Action, and High Balances 88% of borrowers with defaulted student loans worry about wage garnishment or loss of tax refunds 68% have taken proactive steps like enrolling in repayment programs or setting aside money monthly Nearly 1 in 4 borrowers owe more than $50,000 "Our mental health is deeply connected to our financial health," Dvorkin added. "The more we talk about this and give people resources to manage their debt, the more we reduce the emotional burden of money stress." View original content to download multimedia: SOURCE Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CBS News
13-05-2025
- CBS News
These are the most effective debt relief strategies to use right now, experts say
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. There are a few debt relief strategies that could be the financial life preserver you're looking for now, experts say. Getty Images Economic factors, like inflation and potential tariffs, have put financial pressure on Americans, forcing many to turn to credit cards for help. Credit card balances are now at record highs, and with average credit card interest rates nearing 22%, that debt comes with costly consequences. As a result, this type of debt can be overwhelming, to say the least, and even making the minimum monthly payments can leave you stuck in a pricey cycle of debt for years to come. Fortunately, there are debt relief tools that can help. "If there's any silver lining to this economic rollercoaster ride, it's the renewed focus on debt solutions companies. When the economy is roaring, these powerful services tend to get ignored. Now Americans are rediscovering their value," Howard Dvorkin, chairman of says. But not all debt relief options are created equal. If you want to make sure you tackle your debts in the most effective way possible, it's important to know which debt relief strategies make the most sense in today's unique economic climate. Find out how to get help with your high-rate debt today. The most effective debt relief strategies to use now, experts say These are the best routes to explore right now, according to the pros: Debt consolidation Financial pros say that debt consolidation is likely your best option these days, as long as you choose the consolidation product carefully. "With debt consolidation, you consolidate all of your loans into one loan, preferably with a lower interest rate," says Laura Sterling, vice president of marketing at Georgia's Own Credit Union. "Rather than pay multiple loans, you focus on paying one loan, saving money on interest, and streamlining the repayment process." Some lenders offer designated debt consolidation loans you can use for this purpose or, if you're a homeowner, you can use a home equity loan or home equity line of credit (HELOC). HELOCs are one of the best options right now, according to Patti Brennan, president and CEO of Key Financial, as the "interest rates are much lower than credit cards," she says. The average HELOC rate right now is just below 8%. Keep in mind that a new loan will require an application and credit check, so these aren't the best options if you have bad credit. "These can be a good fit if the consumer's credit is fair-to-good, and if they can qualify for decent loan terms," says Natalia Brown, chief compliance officer at National Debt Relief. "The only downside is that it might require collateral and could stretch out the repayment timeline." Explore your debt relief options and start tackling your debt problems today. Balance transfer cards Another option is a balance transfer card. Similar to debt consolidation loans, this strategy involves taking out a new card, paying off your debts and rolling it all into one balance. The new card would ideally be one with a 0% or very low promotional interest rate, allowing you to save money on interest and pay off your debts faster. "If the customer has good credit and can pay off the debt quickly, a balance transfer credit card might help," Brown says. "The catch is that it needs to be paid off before the introductory period ends, or you'll be left dealing with high interest and fees." Debt management plan Debt management plans are another effective option these days. This involves handing your debts over to a debt relief professional or a credit counselor. They will then negotiate with your creditors to try and lower interest rates and fees and come up with a plan for repaying your debts over a specific time period. You'll pay them a monthly fee for this service. "A debt management plan can help the customer stay organized and on track with monthly payments," Brown says. "However, it doesn't actually reduce the total amount owed and usually takes about four to five years to complete." Note, though, that debt management plans typically require you to close out any open credit lines. This ensures you don't rack up more debt while paying down your existing balances. Debt settlement Another option you might explore right now is debt forgiveness, also known as debt settlement. This requires negotiating with your creditors to pay them less than you owe to close out the debt. "Debt settlement is one of the most effective solutions for individuals with $7,500 or more in unsecured debt — such as credit card balances, medical bills, or personal loans," Brown says. The big downside is that debt settlement requires you to stop making payments while your debts are being negotiated. This can put a big dent in your credit score and hurt your financial options moving forward. You should make sure to consider the costs, too. "They charge a high fee for this service," Sterling says. "You will also likely pay taxes on any debt that is forgiven." The bottom line At the end of the day, good financial planning is key if you want to get out of debt. "Create a budget and track your expenses," says Doug Roller, investment advisor representative and owner of Crossroads Financial Group. "You can also call your creditors and see if they can do anything to help you not fall behind on your payments." There are also debt payoff methods you can try, like the avalanche or snowball. With the former, you focus on paying off your highest-interest debt first, making minimum payments on the rest. Once that's paid off, move on to your next highest-interest debt. The snowball method is similar, only it focuses on the smaller-balance debts first. "This method makes the minimum payments to larger debts and puts more money towards the small debt to pay that off faster," Roller says.
