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New Report Shows Americans Opening More Credit Cards to Cope with Inflation: Here’s What to Consider

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Inflation has risen significantly over the past several years, which has a profound impact on the lives of many people in the United States and worldwide. The cost of many goods and services has risen significantly, which has put some households in a financial crunch. Wages at many employers have risen as well, but not always as fast as expenses. A recent report from the Federal Reserve is showing that many Americans are opening credit cards as one way to cope with inflation.

Billions of dollars of credit card debt

The Federal Reserve regularly releases a report detailing a variety of different factors related to consumer credit. In the May 2022 report, the Federal Reserve reported the following:

  • Consumer credit increased at a seasonally adjusted annual rate of 5.9%
  • Revolving credit (including credit cards) increased at an annual rate of 8.1%
  • Nonrevolving credit increased at an annual rate of 5.2%
  • The total amount of outstanding debt was USD$ 4.59 trillion 
  • The total amount of outstanding revolving debt (including credit cards) was USD$ 1.11 trillion. This is the highest amount in this category since at least 2016.

Opening new credit cards can be a valid strategy to help combat inflation, but there are a few things that you’ll want to keep in mind.

Look for a credit card with an introductory 0% APR

One strategy for using credit cards to help with inflation is to look for cards that have introductory 0% APR offers. Many credit cards (including ones with no annual fee) offer anywhere from 12 to 24 months at a 0% interest rate on purchases and/or balance transfers. While we always recommend paying off your credit card balance in full each and every month, that may not always be possible.

If you already have outstanding credit card debt, or if you’re in a short-term situation where you’re not able to pay your balance in full at the end of the month, a 0% APR credit card can save you hundreds if not thousands of dollars in interest costs. Just be careful with your purchases. Just because a card is temporarily not charging interest doesn’t mean it will be free forever. Make sure that you have a plan to pay off your balance before the end of the promotional period.

Keep credit utilization under 30%

Some of the causes of inflation include an increase in the money supply as well as macroeconomic government policies. Responsibly using credit cards can be a way to help cope with inflation, but there are a few things that you’ll want to keep in mind. One is to keep an eye on your total credit utilization ratio. Your credit utilization is defined as the percentage of your total credit that you are actively using. If you have a $3,000 balance on a credit card that has a $10,000 limit, your utilization ratio is 30% ($3,000 divided by $10,000).

Your credit utilization ratio is one of the biggest factors that makes up your credit score, and a low utilization ratio can have a positive effect on your credit score. That is one good reason to keep your utilization low, ideally under 30%. Another reason to keep your utilization low during periods of inflation is to protect against rising costs. As inflation rises, the cost of goods and services increase. If you are at or close to the limit on your credit cards, that can have a significant adverse impact on your financial situation. If you find yourself nearing your credit limit, make a plan to pay off your outstanding debt.

Take advantage of credit card rewards and welcome offers

Responsibly taking advantage of credit card rewards and welcome offers is a savvy financial move. Many credit cards offer travel rewards or cash back with each purchase, and that can serve as a rebate for your spending. Ideally you would be in a situation where you have the financial ability and discipline to pay your credit card balance off in full each and every month. If not, it may be better to focus on paying down your debt before concentrating on credit card rewards.

Another way to take advantage of credit cards is by signing up for new cards and receiving their welcome offers. Many rewards credit cards offer an initial signup bonus worth hundreds or even thousands of dollars when you meet a minimum spending target in the first few months of having the card. Taking advantage of some of these offers can be a great way to stabilize or improve your overall financial situation.

The Bottom Line

Rising inflation is not a great situation for most people, especially if the cost of goods and services is increasing faster than wages. You can use our inflation calculator as one way to determine the impacts of inflation for your household. Responsibly using credit cards can be one way to combat inflation. Just make sure to do it in such a way that you don’t end up with even bigger problems.

Save more, spend smarter, and make your money go further

Dan Miller

Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller

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