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Credit card debt is rising

As consumers struggle to keep up with the ballooning costs of goods, many are turning to credit cards to fill the gap.

Credit card balances climbed to $986 billion in the fourth quarter of 2022 — surpassing the prepandemic high of $927 billion, according to the Federal Reserve Bank of New York. And as more Americans lean into using credit to manage their day-to-day finances, this may only continue to increase.

As of November 2022, the majority of those who reported living paycheck to paycheck in a previous PYMNTs survey were still managing to keep up with their bills — with 67% saying they’d made credit card payments within the last 90 days.

However, with a quarter of respondents unaware of what their interest rate is, that could become more of a challenge for those borrowers, with the federal funds rate still on the rise, which translates into higher interest rates on outstanding credit card balances.

According to the most recent data from LendingTree, the average credit card interest rate in the U.S. has risen to 23.65% — up from 23.55% the previous month.

Savings are dwindling

Many consumers are barely making ends meet — let alone have room at the end of the month to fill up their savings accounts.

The most recent data from the Federal Reserve Bank of St. Louis shows that the U.S. personal savings rate increased to 4.7% in January — after falling to a 17-year low in June last year. The rate refers to personal savings as the percentage of income left over after you pay taxes and spend money.

This is still significantly lower than the pandemic peak of 33.8% recorded in April 2020.

And in a recent survey from insurance company Country Financial, conducted by Ipsos, 28% of Americans report putting less money into savings and investments — while 27% also say they’re pulling money out of their savings.

Others have turned to family members or friends for help. About 13% of those living paycheck to paycheck in the PYMNTs study say they’ve received money from a family member or friend.

Americans steadily depleting their cash reserves in order to compensate for the effects of inflation is becoming a major concern as experts predict a recession could hit sometime in 2023.

Personal finance experts like Suze Orman say it's important to have some emergency funds saved up in case of an unexpected financial crisis, like a job loss, pay cut or even car trouble.

Workers looking for ways to supplement income

Adding to the paycheck pressure, wage and salary growth is slowing down — it dropped from 1.3% to 1% in the fourth quarter of 2022 — and isn’t keeping pace with inflation.

To keep their heads above water, many Americans have turned to side jobs or sought to supplement their income through selling used items or investing, reports the PYMNTS study.

And over 2-in-10 paycheck to paycheck respondents who aren’t currently having trouble paying their bills say that without that extra cash, their financial grounding would seriously deteriorate.

And more than a third of those who have this extra income say they’re still struggling to pay their monthly bills.

Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.

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