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2022 American Household Credit Card Debt Study
Advertiser disclosure You're our first priority. Every time. We believe that everyone should be able make financial decisions with confidence. Although our site doesn't feature every company or financial product that is available in the marketplace We're pleased that the advice we provide as well as the advice we offer and the tools we create are objective, independent, straightforward -- and cost-free. So how do we make money? Our partners pay us. This could influence which products we review and write about (and the way they appear on our website) However, it in no way affects our advice or suggestions that are based on hundreds of hours of research. Our partners cannot promise us favorable review of their services or products. .
2022 American Household Credit Card Debt Study
NerdWallet's annual study finds that credit card debt is growing with the cost of living. Many Americans have financial concerns about the next year.
By Erin El Issa Senior Writer | Personal finance, analysis of data credit cards Erin El Issa writes data-driven studies about personal finance, credit cards, investments, travel, and student loans. She is fascinated by numbers and strives to simplify data sets in order to assist consumers in improving their finances. Prior to becoming an Nerd in 2014, she worked as an accountant for tax and freelance personal finance writer. Erin's work has been mentioned in The New York Times, CNBC, the "Today" show, Forbes and elsewhere. In her spare time, Erin reads voraciously and tries in vain to keep up with her two children. Erin is from Ypsilanti, Michigan.
Jan 10, 2023
Edited by Paul Soucy Lead Assigning Editor Credit cards, credit scoring Personal finance Paul Soucy leads the credit cards content team at NerdWallet. He was editor at the Des Moines Register, USA Today and Meredith/Better Homes and Gardens for more than 20 years. He then built an established freelance writing and editing business. The editor of The USA Today Weekly International Edition and was awarded the most prestigious distinction of the year from ACES: The Society for Editing. He earned a bachelor's in journalism as well as a Master of Business Administration.
The majority or all of the products featured here are provided by our partners, who pay us. This influences which products we feature and the location and manner in which the product appears on a page. However, this doesn't affect our opinions. Our opinions are our own. Here's a list and .
This year has been an expensive one. Living expenses has risen faster than incomes, causing many Americans to take on more debt in order to get by. In addition, interest rates that have increased in response to inflation are making debt more expensive.
NerdWallet's annual review of household debt reveals that credit card balances from month to month been increasing over the last 12 months, totaling approximately $460 billion as of September 2022 . Mortgages, auto loans and overall debt load have also increased in the last year, while student loan debt decreased slightly.
Here's the breakdown of what U.S. households owed in all and the median amount per household for every type of debt as of September 2022:
Type of debt
The total amount owed by an ordinary U.S. household with this amount of debt
Total owed in U.S.
Percentage change of total owed between 2021 to 2022
Any kind of debt*
$165,388
$16.51 trillion
+7.65%
Kreditkartes (total)(total)
$17,066
$1.05 trillion
+15.17%
Credit cards (revolving)
$7,486
$459.6 billion
+28.73%***
Mortgages
$222,592
$11.67 trillion
+8.54%
Auto loans
$28,975
$1.52 trillion
+5.31%
Student loans
$58,238
$1.57 trillion
-0.64%
* This debt may include mortgages and home equity lines of credit and auto loans credit cards, loans for students, loans and other debts of the household as per the Federal Reserve Bank of New York. **Total U.S. credit card outstanding debt comprises transacting and revolving balances. Revolving debt was calculated by with the help of the average over the previous five years of percentage of debt on credit cards considered revolving (carried from month to month) as opposed to transacting (paid monthly in full). In the past, we've received these figures from Experian. The credit bureau has declined to give the revolving and. transaction data for 2022.
A note about the results for this year's year
The increase of nearly 30% in credit card debt revolving -- that is, balances on credit cards carried from month to month -- can be attributed to two things: a significant increase in total credit card debt (revolving or nonrevolving) and a higher estimated proportion of revolving debt. The total credit card debt increased by 15 percent. Since the price of living is outpacing income growth, it stands to reason that the majority of the increase was in through revolving credit. This is only an estimate; we calculated it using the average percentage of revolving loans from the preceding five years. This is more that the previously low revolving debt percentage of 2021, but is in line with percentages in the years before the COVID-19 epidemic.
Our annual study analyses government data -- from such sources including the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of New York -- to examine how the debt of households changes over the course of the year. NerdWallet also recently completed to conduct an online study of more than 2,000 U.S. adults, conducted by Harris Poll. Harris Poll, to learn more about the way Americans think about their debt, and what they expect to happen in the future when interest rate increases will affect their financial position. We also inquired about Americans who use "buy now, and pay over time" services, how the income they earn has (or not) kept pace with inflation, as well as their financial concerns for the coming year.
Key results
Prices are rising more quickly than incomes. Over the last year, the median income of households has grown just 4 percent, while the overall cost of living has jumped 8 . The study found that almost 50% of working Americans (45%) believe that their salaries haven't grown enough over the last twelve months to keep up with inflation.
Buy now, pay later services may mean deeper debt for millions. Nearly one in five Americans (18%) said they've employed a BNPL service in the past 12 months.
Consumers are anxious about finances in the coming year. Nearly 7 out 10 Americans (69%) have financial concerns about the coming year. The number. 1 worry is having to borrow more or take on borrowing to meet the needs (31%) and then paying higher the interest they pay on their debt (27%).
The amount of interest charged by credit cards that households pay is increasing because of recent Federal Reserve rate hikes and increasing amounts of credit card debt that is revolving. U.S. households that carry credit card debt will be paying an average of $1,380 in the interest rate this year . And that's assuming interest rates don't increase.
"Credit credit card debt is typically considered to be the result of frivolous purchases, but in the case of the majority of Americans it's not an accurate statement," says Sara Rathner who is a credit card NerdWallet expert. "Consumers suffer the pressure of rising prices and high the rising interest rates, and wages just aren't keeping up. That's forcing many to make difficult choices, such as going into debt to fund necessities."
The cost of living is outpacing the growth in income significantly over the past year
Each year, we examine the growth in cost of living in comparison to that of household income in the prior decade to see if income is keeping up with expenses. If we use the 10-year time frame, we found income is keeping up with expenses: Median household income has grown by 44% since 2012 and overall expenses have increased by 28% in the same span . But the story changes radically when we look at the short-term growth, due to the COVID-19 pandemic and unusually high inflation.
Looking at growth over the last three yearsfrom pre-pandemic up to today- median income has grown by 7%, but the overall cost of living has been up by almost 16percent . This includes a 27% rise in transportation expenses as well as a 20% rise in food and drink costs and a 14% rise in the cost of housing. That could explain the reason why, as per our study, 45% of Americans think their overall financial health is worse now compared with before that COVID-19 epidemic.
In the survey, almost half of employed Americans (45 percent) believe that their wages haven't been increasing enough in the last 12 months to keep up with the rate of inflation. In the consumer price index as well as income growth data backs this up. Over the past year we've seen prices rise in the range of 8.2 per cent annual inflation as of September 2022. This includes a 13% increase in transportation expenses, 11% in the cost of food and beverages and 8% in the cost of housing. In contrast, the households' median income has risen only 4% during this time .
Consumers are doing what they can to reduce the impact of higher prices. According to the survey almost 4 out of 5 Americans (79 percent) declare that they've implemented measures to combat inflation over the past six months: 42 percent of Americans have said they've driven less and 39% of them say they've purchased more brands from the stores and non-processed essentials. Close to 1 in 5 Americans (19 percent) claim they've taken on more debt due to the rise in inflation over the past six months.
" Examining your current spending for places to cut back and then putting the extra funds to debt repayment or savings could be extremely beneficial. " Sara Rathner , NerdWallet credit cards expert
The burden of debt is making Americans feel stressed, anxious, and overwhelmed
Over the past year, almost 3 in 10 Americans (28 percent) declare that their overall debt has increased. 14 percent of Americans have taken on medical debt in this time. This debt is taking its toll.
According to the study that 41 percent of Americans who are currently in debt feel anxious about it, and 35% feel overwhelmed. This feeling of being overwhelmed is more common among Americans who earn a household income of less than $75,000, who are currently in debt: 44% of the population feel this way, in contrast to 27% of the indebted Americans who have annual household incomes of $75,000 or more.
BNPL may be hiding additional debt
Our annual analysis of household debt analyzes traditional types of debt like mortgages, credit cards, or student loans. Comprehensive information about these debts is compiled and reported by government sources like the Federal Reserve Bank of New York. But the debt problem may get worse due to the proliferation of short-term loans that are offered by firms like Affirm as well as Klarna. BNPL services let you purchase something today and make payments in installments -usually 25 percent at the time of purchase and 25% every two weeks until you pay it off. Longer-term BNPL options usually have a fee for interest, similar to an installment loan.
Based on our research that nearly one in five Americans (18%) had used an BNPL service in the past 12 months. The situation is even more common in younger Americans 25 percent from Gen Zers (ages between 18 and 25) and 30 percent of millennials (ages 26-41) have utilized these services within the last year, compared with 16% from Gen Xers (ages 42-57) and 7% among baby boomers (ages between 58-76).
Certain Americans depend heavily on BNPL service to purchase daily necessities -- things that are consumed before they're paid for. According to a report from September 2022 by the , or CFPB the use of BNPL services for daily or necessary purchases like utility bills, gas and groceries -- increased by 434 percent from 2020 to 2021, and increased by 1,207% between 2019 and 2020.
BNPL services are usually interest-free however, they can be charged late fees for customers who do not pay. The CFPB report revealed that 10.5 percent of BNPL borrowers were assessed at minimum one late fee in 2021. Although late fees tend to be small at around $7 for the annual average loan amount of 135 -the report points out the possible negatives to the services, which could be financially unsound, such as overextending, and accepting more loans than you can reasonably manage.
If you're a consumer who uses the BNPL every now and then, overextension probably won't be an issue. For those who pile loans by taking on multiple loans in a short amount of time, and are regular BNPL users this payment obligation could affect your ability to make other bills on time because of the amount of BNPL obligations they are due. This could lead to late fees, interest charges and even the loss of credit scores.
Many Americans bring financial worries into the new year
The past year has been expensive, and many people aren't optimistic things will get better in the coming year. Nearly 7 in 10 Americans (69%) are worried about their finances in the next 12 months, with a top concern being having to go into debt, or even deeper into debt, to cover necessities (31%).
More than a quarter of Americans (27%) are concerned about the prospect of paying more interest on their debt over the next 12 months. this follows a string of rate hikes from the Federal Reserve and the possibility of further rate increases in 2023.
Credit card interest rates are rising and could go higher
The Fed's actions have raised the average interest rate for accounts that pay interest to 18.43% as of August 2022, according to the Federal Reserve Bank of St. Louis. It is now the most average rate since the St. Louis Fed began keeping track of this data in the year 1994. For American households carrying an average of credit card debt revolving it would cost $1,380 in annual interest charges. In the past year, the average annual interest costs were $1,029 because of lower revolving credit card debt and lower interest rates.
In the year 2022 Americans were treated to seven interest rate increase from the Fed and more may be coming in 2023. According to the study, more than 3 in 5 Americans (61%) think future interest rate increases will affect their finances, whether for good or for ill. While 33% of Americans think it will make their current debt more costly, and 28% think that it will make any new borrowing more costly, one out of five Americans (20 percent) believe they'll earn more interest on their savings.
What can Americans can do
Prepare yourself for a possible recession. As of now there is no recession officially declared, but certain experts believe that we're in one or are about to enter. Even if you are aware that the coming recession is imminent, it can be impossible to anticipate what's coming because the effects of a recession aren't uniform nor universal. the uncertainty could quickly escalate into calamity. These past several years have given ample evidence of the necessity of planning for the unexpected and there are strategies to minimize the damage to your financial health.
If you're in a position do so, you should add funds to your savings consistently. This could mean that you continue to build up an emergency fund of 3 to 6 months' worth of expenses, or perhaps saving beyond that to cover an eventual income loss. To free up more money to save take a look at your budget and consider where you can cut. You don't have to reduce your spending for a lifetime, but in the short-term it will help you boost your savings quicker.
"If a couple of months' worth of expenses is too much to put aside right now, aim to put a few hundred bucks to put into an emergency savings fund" NerdWallet's Rathner suggests. "It is extremely helpful in the event of an unexpected cost."
" It's impossible to influence the global economy but you can take small steps to feel financially secure right now. " Sara Rathner , NerdWallet credit cards expert
Pay now rather than later, if it is possible to. Using a buy now, pay later service may be right for you, but before you use one, think about other options. If you have enough funds in order to settle the debt, placing the purchase on a credit card will get you rewards, and also safeguard your purchase in case that you need to return the item. It is also beneficial to save up for any nonessentials over the course of 6 weeks -- which is the typical BNPL period before making the purchase. You may find you no need to buy the item once some time has expired.
If you decide to utilize BNPL services, you can set up automatic payments to avoid late fees and limit the amount of purchases you can make within a an unspecified time to ensure you don't get overwhelmed.
Avoid major financial decisions If possible, steer clear of major financial decisions. In light of consumer concerns over rising interest rates and credit becoming more difficult to get access to, and decreasing credit limits, you might be advised to delay accepting new credit obligations if you can. This might not be feasible for you, but that's fine; sometimes, we can't wait for the perfect time, particularly when experiencing financial stress. But if you can hold off on making major money changes and make major financial decisions, it's probably a great decision to hold off.
"This is a great time to focus on financial basics," Rathner says. "Checking your expenditure for places to reduce your spending and putting any additional funds to savings or debt repayment could be very beneficial."
Learn how rising interest rates can affect your finances. Over a fifth of Americans (21%) aren't sure whether future interest rate increases will affect their financial situation, as per the poll. If you're in the market for high-interest loans that are variable, such as credit cards or a home equity loanor are in a savings account, higher rates are likely to affect you. Same applies to new loans with fixed rates like the mortgage or auto loan.
Increases in interest rates can increase the cost of your debt However, they increase your savings more quickly. If you're in debt at a variable rate try to make higher or more frequent payments to pay it down quicker. Do not apply for large loans that have fixed rates as well as you canhigh rates can make large purchases, like a home or vehicle, a lot more costly. If you have a savings account, examine your interest rate. Rates were extremely low until recently, but today, you can get Annual percentage rate, also known as APRs, of at least 3.
"The possibility of economic uncertainty is always scary," Rathner says. "You can't manage the economic system in general but you can take small steps to feel financially secure now."
Methodology
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet between October. 25-27, 2022 among 2,041 U.S. adults 18 and older. The accuracy of sampling in Harris online polls is determined using a Bayesian reliable interval. In this case, the sample data is precise to +/- 2.8 percentage points with a 95% confidence level. For complete survey methodology, including weighting variables and size of the subgroups, please contact Lauren Nash at .
The analysis of NerdWallet's includes information from the following sources:
September 2022, data in the Federal Reserve's Center for Microeconomic Data.
December 2021, as reported by December 2021, from the U.S. Census Bureau.
from the Board of Governors of the Federal Reserve System.
September 2022, as reported by the U.S. Bureau of Labor Statistics.
December 2021, as reported by The U.S. Census Bureau.
September 2022, in The U.S. Bureau of Labor Statistics' National Compensation Survey.
August 2022, from August 2022, from the Federal Reserve Bank of St. Louis.
Expand to footnotes for footnotes
1 Credit card balances that are revolving calculated in a different way than other household debt. It is the Federal Reserve Bank of New York utilizes data from Equifax, among the three major credit reporting bureaus located in the U.S., as the source for its data on credit card debt and includes accounts with revolving balances (debt carried between months) as well as transacting balances (debt that will be paid off in the next statement). We've previously relied on information of the credit bureau Experian to calculate the percentage of balances that were transacted and revolved through bank credit cards. Experian hasn't provided information for 2022, so we utilized the average of percentages from 2017 through 2021. The information on the revolving balances of retail credit cards wasn't available thus we assumed the cardholders revolved their debts on credit cards and bank credit cards at the same rate. We then multiplied the total outstanding balances on credit cards across the U.S. -- $1.05 trillion as of September 2022 by the percentage of revolving debt. (According reports from the New York Fed, the majority of households in the country had outstanding credits of 925 billion as of September 2022. This number includes debt on bank credit cards , but no retail credit cards. To make the number more representative of all cards, we took the $925 billion, and then added the 25% reported "other" debt. (The New York Fed says about a quarter of so-called other debt is outstanding retail credit card balances.) Finally, we divided this amount by the number of households that have the revolving credit card debt. We estimated the number houses by multiplying the amount of U.S. households, projected from data that was released at the end of 2021. We then divided that number by the proportion of households that have that debt (using 2022 estimates based on data from 2019 taken from the Fed's Survey of Consumer Finances).
[2] To calculate household debt for each debt category (with the exception of revolving credit card debt -- we took the average of each kind of debt which was provided by the Federal Reserve Bank of New York and then divided this amount by the total number of houses with the same kind of debt. We estimated the number households by multiplying the total number U.S. households, projected based on data that were released at the end of 2021. We then divided that number by the percentage of households holding that debt, based on information taken from the 2018 Survey of Consumer Finances.
Consumer price indexes, also known as CPIs track changes in price for a set of consumer goods and services. The price indexes we studied comprise prices for clothing as well as education and communications food and beverages and food at home, food away from home, housing medical, other products as well as services, recreational activities and transportation. According to the U.S. Bureau of Labor Statistics the price index for all goods and services increased between 274.214 up to 296.761 in the period between September 2021 between September 2021 and September 2022. Transportation CPI rose from 237.107 to 267.043 Food and beverages CPI increased by 280.413 up to 310.635 and housing CPI rose between 283.532 and reached 306.323 between September 2021 and September 20, 2022. To assess the growth in the categories of price indexes with the increase in income in 2012, we have projected the 2022 median household income by using the 2021 median reported income of $70,784 and then increasing or decreasing it by the quarterly percent changes reported within the Bureau of Labor Statistics' Employment Cost Index data for civilians. Based on census data the median household earnings was $70,784 by 2021 and our projections predict the median household income to be $73,653 for 2022.
4] To estimate credit card interest over the time of the year, we applied our estimation of credit card debt that is revolving and data on the average interest rate on credit card accounts assessed interest from the Federal Reserve Bank of St. Louis until August 2022. With a steady balance, we divided the average revolving credit card debt of households with high credit card balances by their average annual percentage rate. This is merely an estimate; for simplicity our calculations do not take into account the daily compounding of balances or fluctuations in balances.
[5] As per the U.S. Bureau of Labor Statistics, the price index of all items was up by 231.015 to 296.761 from September of 2012 and September 2022. Based on census information the median household earnings reached $51,017 as of 2012; our projections show the median household income to be $73,653 for 2022.
6] According to the U.S. Bureau of Labor Statistics, the price index for all goods grew from 256.596 to 296.761 in the months of September to September 2022. Transportation CPI increased from 209.896 to 267.043, food and beverage CPI was up to 258.59 and reached 310.635 as well as housing CPI was up from 267.555 to 306.323 from September of 2019 and September 2022. Based on census data, the median household income was $68,703 in 2019 Our projections predict a median household income of $73,653 in 2022.
About the author: Erin El Issa is a credit card expert and studies writer at NerdWallet. The work she has written for NerdWallet was highlighted by USA Today, U.S. News and MarketWatch.
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2022 American Household Credit Card Debt Study
NerdWallet's annual study finds that credit card debt is growing with the cost of living. Many Americans have financial concerns about the next year.
By Erin El Issa Senior Writer | Personal finance, analysis of data credit cards Erin El Issa writes data-driven studies about personal finance, credit cards, investments, travel, and student loans. She is fascinated by numbers and strives to simplify data sets in order to assist consumers in improving their finances. Prior to becoming an Nerd in 2014, she worked as an accountant for tax and freelance personal finance writer. Erin's work has been mentioned in The New York Times, CNBC, the "Today" show, Forbes and elsewhere. In her spare time, Erin reads voraciously and tries in vain to keep up with her two children. Erin is from Ypsilanti, Michigan.
Jan 10, 2023
Edited by Paul Soucy Lead Assigning Editor Credit cards, credit scoring Personal finance Paul Soucy leads the credit cards content team at NerdWallet. He was editor at the Des Moines Register, USA Today and Meredith/Better Homes and Gardens for more than 20 years. He then built an established freelance writing and editing business. The editor of The USA Today Weekly International Edition and was awarded the most prestigious distinction of the year from ACES: The Society for Editing. He earned a bachelor's in journalism as well as a Master of Business Administration.
The majority or all of the products featured here are provided by our partners, who pay us. This influences which products we feature and the location and manner in which the product appears on a page. However, this doesn't affect our opinions. Our opinions are our own. Here's a list and .
This year has been an expensive one. Living expenses has risen faster than incomes, causing many Americans to take on more debt in order to get by. In addition, interest rates that have increased in response to inflation are making debt more expensive.
NerdWallet's annual review of household debt reveals that credit card balances from month to month been increasing over the last 12 months, totaling approximately $460 billion as of September 2022 . Mortgages, auto loans and overall debt load have also increased in the last year, while student loan debt decreased slightly.
Here's the breakdown of what U.S. households owed in all and the median amount per household for every type of debt as of September 2022:
Type of debt
The total amount owed by an ordinary U.S. household with this amount of debt
Total owed in U.S.
Percentage change of total owed between 2021 to 2022
Any kind of debt*
$165,388
$16.51 trillion
+7.65%
Kreditkartes (total)(total)
$17,066
$1.05 trillion
+15.17%
Credit cards (revolving)
$7,486
$459.6 billion
+28.73%***
Mortgages
$222,592
$11.67 trillion
+8.54%
Auto loans
$28,975
$1.52 trillion
+5.31%
Student loans
$58,238
$1.57 trillion
-0.64%
* This debt may include mortgages and home equity lines of credit and auto loans credit cards, loans for students, loans and other debts of the household as per the Federal Reserve Bank of New York. **Total U.S. credit card outstanding debt comprises transacting and revolving balances. Revolving debt was calculated by with the help of the average over the previous five years of percentage of debt on credit cards considered revolving (carried from month to month) as opposed to transacting (paid monthly in full). In the past, we've received these figures from Experian. The credit bureau has declined to give the revolving and. transaction data for 2022.
A note about the results for this year's year
The increase of nearly 30% in credit card debt revolving -- that is, balances on credit cards carried from month to month -- can be attributed to two things: a significant increase in total credit card debt (revolving or nonrevolving) and a higher estimated proportion of revolving debt. The total credit card debt increased by 15 percent. Since the price of living is outpacing income growth, it stands to reason that the majority of the increase was in through revolving credit. This is only an estimate; we calculated it using the average percentage of revolving loans from the preceding five years. This is more that the previously low revolving debt percentage of 2021, but is in line with percentages in the years before the COVID-19 epidemic.
Our annual study analyses government data -- from such sources including the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of New York -- to examine how the debt of households changes over the course of the year. NerdWallet also recently completed to conduct an online study of more than 2,000 U.S. adults, conducted by Harris Poll. Harris Poll, to learn more about the way Americans think about their debt, and what they expect to happen in the future when interest rate increases will affect their financial position. We also inquired about Americans who use "buy now, and pay over time" services, how the income they earn has (or not) kept pace with inflation, as well as their financial concerns for the coming year.
Key results
Prices are rising more quickly than incomes. Over the last year, the median income of households has grown just 4 percent, while the overall cost of living has jumped 8 . The study found that almost 50% of working Americans (45%) believe that their salaries haven't grown enough over the last twelve months to keep up with inflation.
Buy now, pay later services may mean deeper debt for millions. Nearly one in five Americans (18%) said they've employed a BNPL service in the past 12 months.
Consumers are anxious about finances in the coming year. Nearly 7 out 10 Americans (69%) have financial concerns about the coming year. The number. 1 worry is having to borrow more or take on borrowing to meet the needs (31%) and then paying higher the interest they pay on their debt (27%).
The amount of interest charged by credit cards that households pay is increasing because of recent Federal Reserve rate hikes and increasing amounts of credit card debt that is revolving. U.S. households that carry credit card debt will be paying an average of $1,380 in the interest rate this year . And that's assuming interest rates don't increase.
"Credit credit card debt is typically considered to be the result of frivolous purchases, but in the case of the majority of Americans it's not an accurate statement," says Sara Rathner who is a credit card NerdWallet expert. "Consumers suffer the pressure of rising prices and high the rising interest rates, and wages just aren't keeping up. That's forcing many to make difficult choices, such as going into debt to fund necessities."
The cost of living is outpacing the growth in income significantly over the past year
Each year, we examine the growth in cost of living in comparison to that of household income in the prior decade to see if income is keeping up with expenses. If we use the 10-year time frame, we found income is keeping up with expenses: Median household income has grown by 44% since 2012 and overall expenses have increased by 28% in the same span . But the story changes radically when we look at the short-term growth, due to the COVID-19 pandemic and unusually high inflation.
Looking at growth over the last three yearsfrom pre-pandemic up to today- median income has grown by 7%, but the overall cost of living has been up by almost 16percent . This includes a 27% rise in transportation expenses as well as a 20% rise in food and drink costs and a 14% rise in the cost of housing. That could explain the reason why, as per our study, 45% of Americans think their overall financial health is worse now compared with before that COVID-19 epidemic.
In the survey, almost half of employed Americans (45 percent) believe that their wages haven't been increasing enough in the last 12 months to keep up with the rate of inflation. In the consumer price index as well as income growth data backs this up. Over the past year we've seen prices rise in the range of 8.2 per cent annual inflation as of September 2022. This includes a 13% increase in transportation expenses, 11% in the cost of food and beverages and 8% in the cost of housing. In contrast, the households' median income has risen only 4% during this time .
Consumers are doing what they can to reduce the impact of higher prices. According to the survey almost 4 out of 5 Americans (79 percent) declare that they've implemented measures to combat inflation over the past six months: 42 percent of Americans have said they've driven less and 39% of them say they've purchased more brands from the stores and non-processed essentials. Close to 1 in 5 Americans (19 percent) claim they've taken on more debt due to the rise in inflation over the past six months.
" Examining your current spending for places to cut back and then putting the extra funds to debt repayment or savings could be extremely beneficial. " Sara Rathner , NerdWallet credit cards expert
The burden of debt is making Americans feel stressed, anxious, and overwhelmed
Over the past year, almost 3 in 10 Americans (28 percent) declare that their overall debt has increased. 14 percent of Americans have taken on medical debt in this time. This debt is taking its toll.
According to the study that 41 percent of Americans who are currently in debt feel anxious about it, and 35% feel overwhelmed. This feeling of being overwhelmed is more common among Americans who earn a household income of less than $75,000, who are currently in debt: 44% of the population feel this way, in contrast to 27% of the indebted Americans who have annual household incomes of $75,000 or more.
BNPL may be hiding additional debt
Our annual analysis of household debt analyzes traditional types of debt like mortgages, credit cards, or student loans. Comprehensive information about these debts is compiled and reported by government sources like the Federal Reserve Bank of New York. But the debt problem may get worse due to the proliferation of short-term loans that are offered by firms like Affirm as well as Klarna. BNPL services let you purchase something today and make payments in installments -usually 25 percent at the time of purchase and 25% every two weeks until you pay it off. Longer-term BNPL options usually have a fee for interest, similar to an installment loan.
Based on our research that nearly one in five Americans (18%) had used an BNPL service in the past 12 months. The situation is even more common in younger Americans 25 percent from Gen Zers (ages between 18 and 25) and 30 percent of millennials (ages 26-41) have utilized these services within the last year, compared with 16% from Gen Xers (ages 42-57) and 7% among baby boomers (ages between 58-76).
Certain Americans depend heavily on BNPL service to purchase daily necessities -- things that are consumed before they're paid for. According to a report from September 2022 by the , or CFPB the use of BNPL services for daily or necessary purchases like utility bills, gas and groceries -- increased by 434 percent from 2020 to 2021, and increased by 1,207% between 2019 and 2020.
BNPL services are usually interest-free however, they can be charged late fees for customers who do not pay. The CFPB report revealed that 10.5 percent of BNPL borrowers were assessed at minimum one late fee in 2021. Although late fees tend to be small at around $7 for the annual average loan amount of 135 -the report points out the possible negatives to the services, which could be financially unsound, such as overextending, and accepting more loans than you can reasonably manage.
If you're a consumer who uses the BNPL every now and then, overextension probably won't be an issue. For those who pile loans by taking on multiple loans in a short amount of time, and are regular BNPL users this payment obligation could affect your ability to make other bills on time because of the amount of BNPL obligations they are due. This could lead to late fees, interest charges and even the loss of credit scores.
Many Americans bring financial worries into the new year
The past year has been expensive, and many people aren't optimistic things will get better in the coming year. Nearly 7 in 10 Americans (69%) are worried about their finances in the next 12 months, with a top concern being having to go into debt, or even deeper into debt, to cover necessities (31%).
More than a quarter of Americans (27%) are concerned about the prospect of paying more interest on their debt over the next 12 months. this follows a string of rate hikes from the Federal Reserve and the possibility of further rate increases in 2023.
Credit card interest rates are rising and could go higher
The Fed's actions have raised the average interest rate for accounts that pay interest to 18.43% as of August 2022, according to the Federal Reserve Bank of St. Louis. It is now the most average rate since the St. Louis Fed began keeping track of this data in the year 1994. For American households carrying an average of credit card debt revolving it would cost $1,380 in annual interest charges. In the past year, the average annual interest costs were $1,029 because of lower revolving credit card debt and lower interest rates.
In the year 2022 Americans were treated to seven interest rate increase from the Fed and more may be coming in 2023. According to the study, more than 3 in 5 Americans (61%) think future interest rate increases will affect their finances, whether for good or for ill. While 33% of Americans think it will make their current debt more costly, and 28% think that it will make any new borrowing more costly, one out of five Americans (20 percent) believe they'll earn more interest on their savings.
What can Americans can do
Prepare yourself for a possible recession. As of now there is no recession officially declared, but certain experts believe that we're in one or are about to enter. Even if you are aware that the coming recession is imminent, it can be impossible to anticipate what's coming because the effects of a recession aren't uniform nor universal. the uncertainty could quickly escalate into calamity. These past several years have given ample evidence of the necessity of planning for the unexpected and there are strategies to minimize the damage to your financial health.
If you're in a position do so, you should add funds to your savings consistently. This could mean that you continue to build up an emergency fund of 3 to 6 months' worth of expenses, or perhaps saving beyond that to cover an eventual income loss. To free up more money to save take a look at your budget and consider where you can cut. You don't have to reduce your spending for a lifetime, but in the short-term it will help you boost your savings quicker.
"If a couple of months' worth of expenses is too much to put aside right now, aim to put a few hundred bucks to put into an emergency savings fund" NerdWallet's Rathner suggests. "It is extremely helpful in the event of an unexpected cost."
" It's impossible to influence the global economy but you can take small steps to feel financially secure right now. " Sara Rathner , NerdWallet credit cards expert
Pay now rather than later, if it is possible to. Using a buy now, pay later service may be right for you, but before you use one, think about other options. If you have enough funds in order to settle the debt, placing the purchase on a credit card will get you rewards, and also safeguard your purchase in case that you need to return the item. It is also beneficial to save up for any nonessentials over the course of 6 weeks -- which is the typical BNPL period before making the purchase. You may find you no need to buy the item once some time has expired.
If you decide to utilize BNPL services, you can set up automatic payments to avoid late fees and limit the amount of purchases you can make within a an unspecified time to ensure you don't get overwhelmed.
Avoid major financial decisions If possible, steer clear of major financial decisions. In light of consumer concerns over rising interest rates and credit becoming more difficult to get access to, and decreasing credit limits, you might be advised to delay accepting new credit obligations if you can. This might not be feasible for you, but that's fine; sometimes, we can't wait for the perfect time, particularly when experiencing financial stress. But if you can hold off on making major money changes and make major financial decisions, it's probably a great decision to hold off.
"This is a great time to focus on financial basics," Rathner says. "Checking your expenditure for places to reduce your spending and putting any additional funds to savings or debt repayment could be very beneficial."
Learn how rising interest rates can affect your finances. Over a fifth of Americans (21%) aren't sure whether future interest rate increases will affect their financial situation, as per the poll. If you're in the market for high-interest loans that are variable, such as credit cards or a home equity loanor are in a savings account, higher rates are likely to affect you. Same applies to new loans with fixed rates like the mortgage or auto loan.
Increases in interest rates can increase the cost of your debt However, they increase your savings more quickly. If you're in debt at a variable rate try to make higher or more frequent payments to pay it down quicker. Do not apply for large loans that have fixed rates as well as you canhigh rates can make large purchases, like a home or vehicle, a lot more costly. If you have a savings account, examine your interest rate. Rates were extremely low until recently, but today, you can get Annual percentage rate, also known as APRs, of at least 3.
"The possibility of economic uncertainty is always scary," Rathner says. "You can't manage the economic system in general but you can take small steps to feel financially secure now."
Methodology
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet between October. 25-27, 2022 among 2,041 U.S. adults 18 and older. The accuracy of sampling in Harris online polls is determined using a Bayesian reliable interval. In this case, the sample data is precise to +/- 2.8 percentage points with a 95% confidence level. For complete survey methodology, including weighting variables and size of the subgroups, please contact Lauren Nash at .
The analysis of NerdWallet's includes information from the following sources:
September 2022, data in the Federal Reserve's Center for Microeconomic Data.
December 2021, as reported by December 2021, from the U.S. Census Bureau.
from the Board of Governors of the Federal Reserve System.
September 2022, as reported by the U.S. Bureau of Labor Statistics.
December 2021, as reported by The U.S. Census Bureau.
September 2022, in The U.S. Bureau of Labor Statistics' National Compensation Survey.
August 2022, from August 2022, from the Federal Reserve Bank of St. Louis.
Expand to footnotes for footnotes
1 Credit card balances that are revolving calculated in a different way than other household debt. It is the Federal Reserve Bank of New York utilizes data from Equifax, among the three major credit reporting bureaus located in the U.S., as the source for its data on credit card debt and includes accounts with revolving balances (debt carried between months) as well as transacting balances (debt that will be paid off in the next statement). We've previously relied on information of the credit bureau Experian to calculate the percentage of balances that were transacted and revolved through bank credit cards. Experian hasn't provided information for 2022, so we utilized the average of percentages from 2017 through 2021. The information on the revolving balances of retail credit cards wasn't available thus we assumed the cardholders revolved their debts on credit cards and bank credit cards at the same rate. We then multiplied the total outstanding balances on credit cards across the U.S. -- $1.05 trillion as of September 2022 by the percentage of revolving debt. (According reports from the New York Fed, the majority of households in the country had outstanding credits of 925 billion as of September 2022. This number includes debt on bank credit cards , but no retail credit cards. To make the number more representative of all cards, we took the $925 billion, and then added the 25% reported "other" debt. (The New York Fed says about a quarter of so-called other debt is outstanding retail credit card balances.) Finally, we divided this amount by the number of households that have the revolving credit card debt. We estimated the number houses by multiplying the amount of U.S. households, projected from data that was released at the end of 2021. We then divided that number by the proportion of households that have that debt (using 2022 estimates based on data from 2019 taken from the Fed's Survey of Consumer Finances).
[2] To calculate household debt for each debt category (with the exception of revolving credit card debt -- we took the average of each kind of debt which was provided by the Federal Reserve Bank of New York and then divided this amount by the total number of houses with the same kind of debt. We estimated the number households by multiplying the total number U.S. households, projected based on data that were released at the end of 2021. We then divided that number by the percentage of households holding that debt, based on information taken from the 2018 Survey of Consumer Finances.
Consumer price indexes, also known as CPIs track changes in price for a set of consumer goods and services. The price indexes we studied comprise prices for clothing as well as education and communications food and beverages and food at home, food away from home, housing medical, other products as well as services, recreational activities and transportation. According to the U.S. Bureau of Labor Statistics the price index for all goods and services increased between 274.214 up to 296.761 in the period between September 2021 between September 2021 and September 2022. Transportation CPI rose from 237.107 to 267.043 Food and beverages CPI increased by 280.413 up to 310.635 and housing CPI rose between 283.532 and reached 306.323 between September 2021 and September 20, 2022. To assess the growth in the categories of price indexes with the increase in income in 2012, we have projected the 2022 median household income by using the 2021 median reported income of $70,784 and then increasing or decreasing it by the quarterly percent changes reported within the Bureau of Labor Statistics' Employment Cost Index data for civilians. Based on census data the median household earnings was $70,784 by 2021 and our projections predict the median household income to be $73,653 for 2022.
4] To estimate credit card interest over the time of the year, we applied our estimation of credit card debt that is revolving and data on the average interest rate on credit card accounts assessed interest from the Federal Reserve Bank of St. Louis until August 2022. With a steady balance, we divided the average revolving credit card debt of households with high credit card balances by their average annual percentage rate. This is merely an estimate; for simplicity our calculations do not take into account the daily compounding of balances or fluctuations in balances.
[5] As per the U.S. Bureau of Labor Statistics, the price index of all items was up by 231.015 to 296.761 from September of 2012 and September 2022. Based on census information the median household earnings reached $51,017 as of 2012; our projections show the median household income to be $73,653 for 2022.
6] According to the U.S. Bureau of Labor Statistics, the price index for all goods grew from 256.596 to 296.761 in the months of September to September 2022. Transportation CPI increased from 209.896 to 267.043, food and beverage CPI was up to 258.59 and reached 310.635 as well as housing CPI was up from 267.555 to 306.323 from September of 2019 and September 2022. Based on census data, the median household income was $68,703 in 2019 Our projections predict a median household income of $73,653 in 2022.
About the author: Erin El Issa is a credit card expert and studies writer at NerdWallet. The work she has written for NerdWallet was highlighted by USA Today, U.S. News and MarketWatch.
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