Drowning inCredit Card Debt?

Financially

by Rupa Pereira

What would you rather be? A depositor or borrower?

It depends, if benefits of borrowing outweigh benefits of lending, borrowing is preferred. Such was the case this past decade when historic low interest rates deterred savers and encouraged borrowing - spurring home buying, car purchases, student loans and high-end purchases. The “Buy Now Pay Later” phenomenon took off during the pandemic and is still strong.

You may be familiar with US Debt ceiling. This is not just a national debt issue, though, as we’re grappling with it at a household level, too. We have a spending problem.

Pre-pandemic, credit card debt was $927 billion. As of 2023, credit card debt is $50 billion higher at $986B whereby 46 percent of people carry personal debt from month to month.

You may ask - how may this be applied to me?

In more ways than one:

We earn so we can spend. One of the golden rules of financial planning is never spend more than you earn. Yet, with the ease of plastic cards, it’s a payWave here, a swipe there and those generous credit limits appear to be an extension of our earning potential. Therein lies the problem.

As of May 3rd, 2023 the Federal Reserve Bank has raised the benchmark interest rate to 5.1 percent, the highest it has been since 2007, to stem rising inflation. This directly affects the prime rate on your credit card and the mortgage interest rate.