Inflation-slammed Americans are piling on credit card debt

Searing inflation is driving Americans to make more purchases on their credit cards, leading leading them to amass more debt that is becoming costlier as the Federal Reserve hikes interest rates. 

Early in the pandemic, many families had more cash on hand as they cut their spending on things like dining out and as the federal government rolled out a range of financial assistance programs, such as stimulus checks. That helped them pay off billions in credit card debt.

"They had extra savings, they had government stimulus money, but as inflation has gotten worse that's really reversed," Washington Post economics reporter Abha Bhattarai told CBS News. "We're starting to see people charging more on their credit cards and owe more than usual as well."

Indeed, Americans now face a double whammy. Many are firing up their credit cards to maintain their standard of living as inflation, which has far outpaced wage growth, saps their purchasing power. Meanwhile, interest rates on plastic are surging, raising the cost of that debt. 

Inflation is continuing to wallop Americans, with consumer prices up 8.2% in September from a year ago. Core inflation, which excludes volatile food and energy prices, have jumped 6.6% over the last 12 months — the fast rise in 40 years.

The average credit card rate in the U.S. is now more than 22%, the highest since 2019, according to LendingTree. For people who carry a balance, the average rate is 18.4%, according to Federal Reserve data. 

As of the second quarter, Americans owed $887 billion in credit card debt, up 13% from the year-ago period. Nearly six in 10 Americans who earn less than $50,000 a year carry a credit card balance from month to month, according to CreditCards.com.

"The Fed's decision to raise interest rates is going to continue to impact people with credit card debt because that means their interest rates are rising and they owe more as a result," Bhattarai said. 

Experts recommend that credit card users reduce their debt as quickly as possible to limit their interest charges.

That means avoiding making purchases you cannot afford and prioritizing paying down credit card debt over contributing to a savings plan, for example. Even consider asking a credit card issuer for a lower interest rate.

"Many lenders are open to coming up with a payment plan for you that customers don't know about. Be proactive and ask for a certain payment plan," said Kristy Kim, co-founder and CEO of TomoCredit, a new credit card company for people without credit scores, like young adults and immigrants.