How the government is causing a credit card debt crisis

This entrada también is available in: Spanish

By Brad Polumbo

Inflation continues unabated, and it is one of the main concerns of Americans right now. But we just learned that another way rising prices are hurting families is driving them into massive credit card debt.

“More Americans are racking up credit card debt as inflation drives up the cost of food, utilities and other essentials,” CBS News reporting. “Sixty percent of credit card holders have held balances on their cards for at least a year, up 10% from 2021.”

“59% of Americans earning less than $50,000 a year have a month-over-month credit card balance,” the report notes. “The percentage drops slightly to 49% for those earning between $50,000 and $80,000 and drops back down to 46% for those earning between $80,000 and $100,000 a year.

This is a serious problem for many families.

“It’s even harder to get out of debt when it comes to spending on the necessities that got you in that position in the first place,” analyst Ted Rossman told CBS. “These expenses are not easy to avoid.”

Americans must now $887 billion of credit card debt, according to the Federal Reserve Bank of New York. This is 13% more than in 2021!

Credit card debt is not something to be taken lightly. Due to the way it is structured, it can quickly become exorbitant and ultimately cost much more than the initial purchases.

“Credit card debt accumulates when the credit card is not paid in full at the end of each billing cycle”, Explain “When the balance is carried over to the next billing period, interest accrues as an annual percentage rate (APR). The APR is the interest rate that applies to purchases, cash advances and balance transfers, and it adds up. This means that interest accrues on interest, and the longer you delay paying off a debt, the more you will owe.

The website provides an illustrative example that shows how quickly credit card debt can spiral out of control. If you borrow $10,000 on a card with a 25% interest rate and only make the minimum payments, you will eventually have to pay back over $30,000 and that will take almost 30 years!

Fueled by inflation eroding their paychecks and skyrocketing their spending, many American families face this potential scenario. And it is important to remember that this is not an abstract economic phenomenon. The federal government has caused inflation through its reckless fiscal and monetary policies during the pandemic.

It printed trillions of new dollars out of thin air and ran up multi-trillion dollar deficits in wasteful “stimulus” spending. The inevitable result of this flood of dollars chasing the same number of goods (or even fewer) was always going to be higher prices. And that’s exactly what happened.

But, as the credit card debt problem shows, the second-order consequences of government interventions in a Chinese store play out well beyond price increases. It will take many years of study before we fully understand all the ways in which these reckless policies hurt American families, but one thing is clear: the bill ultimately paid will be expensive.

Editor’s Note: This article was republished with permission from COSTS.

Foundation for Economic Education (FEE)

About Shirley L. Kreger

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