Edited by: Keri Stooksbury
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The COVID-19 pandemic altered American spending patterns dramatically. In the early days of the pandemic, social distancing and stay-at-home orders resulted in a shift away¹ from transportation, restaurant, and entertainment expenditures. However, consumer spending has since rebounded, and now high inflation has raised the basic cost of living. In addition, rising interest rates are making the cost of borrowing more expensive. While many Americans use credit cards regularly for their rewards and benefits, more people are turning to credit cards for temporary relief as prices continue to rise.
Revolving Debt Has Been Climbing Steadily and Is Now Nearing Pre-pandemic Levels
In 2020 and 2021, large decreases in consumer spending combined with stimulus checks and other financial relief helped reduce revolving credit card balances, which is the amount that accrues interest carried from one billing cycle to the next. And in the spring of 2022, total revolving credit card debt reached its lowest level since 2014. But as consumer spending started to recover and inflation swelled, revolving debt has been climbing steadily and is now nearing pre-pandemic levels.
Unfortunately, at the same time credit card balances rose, the cost of carrying credit card debt increased sharply. In a bid to rein in inflation, the Federal Reserve raised interest rates 10 times since March of 2022. Consequently, the average credit card interest rate for accounts assessed interest swelled from 16.17% in early 2022 to nearly 21% in Q1 2023.
37% of Adults Said They Used Credit Cards To Cover Basic Living Expenses
The combination of high interest rates and rising costs has put American households in a challenging position. Now, nearly 70% of people report they are finding it difficult to pay for basic living expenses — up from less than 50% in May 2021. At the same time, more and more Americans have turned to their credit cards. As of February 2023, 37% of adults said they used credit cards to cover basic living expenses, up from 23% in March 2021.
Breakdown of Alternative Payment Methods Used To Cover Basic Living Expenses
Aside from regular income sources, credit cards or loans are the most common payment method used to cover basic living expenses. The 37% of adults who reported using credit cards or loans to pay for living expenses is nearly 10 percentage points higher than the 28% of adults who used savings, sold assets/possessions, or made retirement account withdrawals. Less common methods for paying for living expenses include borrowing from friends or family, various government assistance programs, and money saved from deferred or forgiven payments.
While many adults are turning to credit cards to meet their spending needs, credit card dependence varies by location. Some areas where the cost of living is higher than the national average tend to depend on credit cards in larger proportions. States in the Northeast — such as Connecticut, Massachusetts, and New York — have the highest share of adults using credit cards to cover expenses, all over 41%. In fact, among the top 10 states where adults are using credit cards to meet spending needs, 6 of them are located in the Northeast.
Conversely, areas where the dollar goes a little further than average also typically utilize credit cards less frequently to meet spending needs. States in the Mountain West such as Wyoming (27.9%), North Dakota (30.5%), and Idaho (31.7%) have some of the lowest percentages of adults using credit cards to cover expenses. Similarly in the South, Mississippi and Louisiana have only 28.7% and 32.8% of adults using credit cards for basic living expenses, respectively.
For a breakdown of all 50 U.S. states, here is the report’s complete data table:
To determine the states where people are using credit cards to cover basic living expenses, researchers at Upgraded Points analyzed the latest data from the U.S. Census Bureau’s Household Pulse Survey. The researchers ranked states according to the share of adults who self-reported recently using credit cards to meet their spending needs. Adults were surveyed during the month of February 2023. In the event of a tie, the state with the larger total number of adults that used credit cards to cover basic living expenses was ranked higher. Researchers also calculated the total adults using credit cards to cover expenses, the share of adults with difficulty covering expenses, and the total adults with difficulty covering expenses.
As consumer spending rebounded from the initial pandemic dip, prices and interest rates have risen as well. Credit card balances are rising quickly and approaching pre-pandemic levels as more Americans rely on their credit cards to afford basic living expenses.
The share of people who report having difficulty affording basic living expenses is rising, and now nearly 70% of adults have at least some difficulty covering basic living costs. More than 1 in 3 Americans rely on credit cards or loans to cover basic living expenses, the most common payment method other than regular income sources.
Relying on credit card debt comes at a much higher cost than a year ago — the Federal Reserve has raised its target interest rate 10 times since last March. The average credit card interest rate is now 25% higher than it was at the beginning of 2022. Stubbornly high inflation means that more interest rate hikes in the future are likely, and Americans will face both further cost of living and borrowing increases.
Cost of living may have a major influence when it comes to dependence on credit cards to meet spending needs. Geographically, expensive areas in the Northeast tend to have larger shares of adults that rely on credit cards to cover expenses, while some states in the Mountain West and South utilize credit cards in lower numbers.
1. Bureau of Labor Statistics, U.S. Department of Labor. (2023, May 2). The Economics Daily, Changes to consumer expenditures during the COVID-19 pandemic. https://www.bls.gov/opub/ted/2022/changes-to-consumer-expenditures-during-the-covid-19-pandemic.htm. Retrieved May 17, 2023
Featured Image Credit: Upgraded Points
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