A recent report released by the US Federal Reserve shows that consumer debt increased to $4.5 trillion in February, with credit card debt seeing the largest rise.
Despite job growth being much stronger than expected in recent months, inflation continues to soar in many countries. This has pushed up the cost of living. In particular, gas prices have skyrocketed motorists are experiencing fuel prices that have reached a seven-year high.
The Federal Reserve report, which was published on 7th April, shows that consumers tapped into a huge amount of credit in February.
Overall, the level of consumer debt increased by $42 billion in just one month, reaching nearly $4.5 trillion in total. This is an 11.3% annual increase, which is much higher than the 2.4% growth seen in January’s figures.
The report also notes that credit card debt accounted for a substantial percentage of the increase. There was a 21% rise in revolving debt, which includes credit cards, compared with 4% in the previous month. US credit card debt now stands at approximately $1.1 trillion.
The risks of credit card debt
It’s not surprising that credit card debt has increased with the rise in inflation. However, this type of debt can easily become overwhelming for consumers.
Although controlling spending and budgeting is essential, this is not always possible when prices are higher. So, it’s important that anyone affected by debt builds a plan to pay it off.
Tracking income and expenses is one way to do this, as it makes it easier to plan. And, anyone that can’t pay off the full balance of their credit cards each month should aim to keep their balance below 30% of their credit limit, as this helps to maintain a good credit score.
The Fed has suggested that credit card rates could go up in the coming months, which would affect those with higher balances more, as it will make it more difficult to pay off.