American Credit Card Balances Are Exceeding Pre-Pandemic Levels. What Does This Mean?
Mar 16, 2023
Economists who study financial matters impacting society have noticed a trend in early 2023. American credit card balances are now exceeding levels seen before the pandemic.
As a consumer, you might wonder what this means. Credit card spending trends can tell you a lot about what’s happening in America. Whether you’re looking to improve your credit score, finance home repairs, or make another major purchase, knowing what’s going on with credit card spending can tell you how the economy is impacting society.
We’ll talk about what this trend in credit card balances means right now.
The basics of credit cards
First of all let’s go over the basics of credit cards. This means understanding the
difference between credit score and credit limit. A credit score is a number based on your payment history, credit utilization, length of credit history, types of credit accounts, and other financial information. The purpose of a credit score is to give lenders an idea of how likely you are to pay back a loan or credit card balance on time.
A credit limit is the maximum amount of credit that a lender is willing to extend to you, based onyour income, credit history, and other financial information.
Why Rising Card Balances Mean a Healthy Economy
Curiously, rising credit card balances can be seen as a positive or a negative economic indicator, depending on your perspective. This is one of those classic glass-half-full or glass-half-empty scenarios.
Some economists view rising card balances as a positive because it means families and individuals with credit cards are willing to spend more money again. They may have more disposable income, and they’re spending more on luxury items, which stimulates the economy.
Why They Are a Negative Economic Indicator
The glass-half-empty perspective regarding rising credit card balances is that with inflation, goods and services cost more, so consumers must spend more to get the things they need. Looking at it that way, you might surmise that people are putting more necessary items and services on their cards, such as paying utility bills or buying groceries.
The potential problem with individuals and families using their credit cards for necessities is that they can get hit with high interest rates if they can’t pay off the balance on those cards in time. Some companies charge as much as a 30% interest rate on their credit cards or even higher.
If someone uses their card out of necessity because they can’t pay for the services and goods they need with cash, that can hurt their finances if they’re paying exorbitant interest rates. This is a potential reason for concern among economists who monitor how much credit card spending is happening throughout America.
How Does This Relate to You?
It is pointless to concern yourself overly much with how the economy as a whole is doing. You might monitor it, but you can’t control it directly. All you are responsible for is your own financial behavior.
With that in mind, you might be one of the individuals using your credit card more because you’re feeling more financially secure right now. Maybe you’re using the card to get some non-essential or luxury items, and you’re paying off your card in full at the end of each payment period.
If you’re using your card more because you have expenses and no alternative, that might be problematic. What matters most is whether you can pay off the entire card balance at the end of each pay period or whether you have to carry a balance and pay the interest on it.
Use Your Credit Cards Responsibly
Credit card usage is often a good barometer that you can look at to monitor what’s happening with the economy. While higher card balances can be seen as either positive or negative, depending on your perspective, there’s one additional factor that comes into play.
Economists can see how many individuals and families who are using their credit cards are carrying debt. At the moment, it’s a high number. That indicates more cardholders are using their cards out of necessity rather than to purchase frivolous items. This isn’t a great sign for the country’s overall economic health.
Again, all you can control is how you use your own credit cards. It’s best to only utilize them when you feel sure you can pay off the entire amount during the designated payment period. That is how you keep your credit score up and maintain financially responsible habits.
Name: Michael Bertini
Job Title: Consultant
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