The combination of credit card debt and rising interest rates has reached a milestone that many expected, but few are welcoming.
Borrowers throughout the United States now owe $1 trillion in credit card debt. Average monthly balances are at $9,600 for those who do not pay in full each month. Consumers are paying an average of $1,254 in annual interest, an increase from the previous year’s $1185.
Those amounts do not include two possible interest rate hikes that may be coming this year. While high-interest debt continues to accrue, prices for essentials are on the rise. The combination could see interest rates reach $1,310 annually or $116 a year.
While an amount a little over $100 may not seem significant for one consumer, the long-term habit of making minimum monthly installments by borrowers continues to be an alarming trend. Ballooning balances show no signs of stabilizing or decreasing.
Wages for working people offer few signs of relief. Income rates are simply not keeping pace in their race with debts. According to the Bureau of Labor Statistics, income is up 21 percent. However, that increase is offset by other increases in the aforementioned essential purchase category.
Based on a 2016 study conducted by NerdWallet, medical expenses are 57 percent higher, food costs grew by 36 percent, and housing expenditures are up 32 percent from 2003.
While defaults remain below the 6.8 percent high during the Great Recession of 2008, numbers are starting to show a slight increase of 2.3 percent. All the while, monthly minimum credit card payments seem to be the rule. Consumers and the economy as a whole may need an exception.