A significant number of Americans are reducing their reliance on credit cards, according to a recent NerdWallet survey, as a result of increased credit card interest rates.
According to the data, 15% of respondents said they completely stopped using credit cards, while another 15% said they opted for balance transfer credit cards to mitigate the impact of rising interest rates.
“For consumers that struggle with personal finance management, sometimes closing the credit card, or instituting a spend lock is a good practice to control finances,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research. “During times of strain on the household budget we typically see credit card usage increase overall, which is exactly what we’ve seen in credit card balances throughout 2022 and into 2023. Although, some will close their account, most will continue to use the card.”
Soaring credit card interest rates have far-reaching implications for Americans’ personal finances. With interest rates at historic highs, individuals carrying credit card debt face prolonged struggles to pay off their balances. Nearly one in five Americans NerdWallet surveyed acknowledged that rising interest rates will extend the time it takes to pay off their existing debts. Additionally, 18% of respondents said the increased interest rates have made their overall debt more expensive.
The survey also highlighted the growing popularity of alternative payment options, including buy now, pay later (BNPL) services. As credit card interest rates rise, 25% of Americans have turned to BNPL services as a potentially cheaper alternative. This trend suggests that consumers are actively seeking more affordable financing options amidst the challenging economic landscape.
The survey also revealed a concerning trend of credit card debt secrecy. A significant number of individuals with credit card debt said they choose to keep it concealed from their loved ones, with approximately one-third of Americans stating that no one knows the extent of their credit card debt.
In the grand scheme of things, the soaring credit card interest rates and the subsequent shifts in consumer behavior reflect how much the payments landscape is changing, and how consumers are adapting. Traditional credit cards—once the primary method of financing purchases—are becoming less attractive due to the high cost of carrying debt. As reflected in NerdWallet’s survey, this shift has opened the door for alternative payment options, which offer consumers more flexible and potentially cheaper financing options.