Today’s read comes from the Wall Street Journal, which wonders, “What’s Behind $1 Trillion in Credit Card Balances.” The article’s premise is correct: “It’s hard to blame the Federal Reserve as the reason Americans’ card bill surpassed $1 trillion this month.”
Credit card interest rates are at record highs. The current average sits at 22.16%, up from 16.65% at this time last year. WSJ calls that a “relatively modest increase.” I would not call a rise from 16.65% to 22.16% modest; put a pencil to it, and you will see a 33.1% increase. However, when you consider the average price for a gallon of gas is now $3.94 versus a year ago at $4.09, the numbers are way off. Yet when rent in Manhattan is now $5,588 monthly, perhaps 33.1% is a relative deal.
The good news is that the net impact on consumers is not significant. The article says: “That increase adds about $25 a month in interest on an average credit-card balance of $5,733, according to TransUnion data.” The article does nail a few things, though:
- It is hard to blame credit card rates for Americans’ surging credit card balances, up over $1 trillion for the first time this month.
- The trillion-dollar number is fueled by still-elevated inflation, consumers’ continued spending, and a smaller share of borrowers paying off their statements in full, say analysts and financial advisers.
- “Spending and how much of the bill you pay will very much overwhelm the interest,” said Christopher Fred, head of credit cards at TD Bank.
The article also calls out an excellent consumer credit trick to reduce rates. If you can access a top lender, look for a good balance transfer offer.
- Part of the reason borrowers have done well is that credit card companies fighting for market share have continued to shower consumers with 0% interest promotional offers.
- Those offers have helped lenders open a record $89 billion worth of new credit lines so far this year, according to data from the Federal Reserve Bank of Philadelphia.
And the balance transfer strategy works. Instead of paying that average 22.16%, you will pay 0%. A fee will usually be associated with the transfer, ranging from 3% to 5%, but if you pay within the period, life will be better.
As to rents in NYC, we can do nothing about that except maybe suggest New Jersey.