States Where Inflation Is Driving Increased Reliance on Credit Cards

Recent data suggests that efforts to tame inflation are starting to have an effect. After nearly a year of steady interest rate increases by the Federal Reserve, year-over-year growth in the Consumer Price Index slowed to 6.0% in February 2023. This figure was the lowest since September 2021.

While inflation might have finally reached its peak, many Americans continue to struggle with high prices. Nominal wages have grown since the start of the COVID-19 pandemic amid the Great Resignation and ongoing labor market tightness, but this rate of growth has trailed the rate of price increases for most workers. This cuts into household budgets and makes it more difficult for consumers to maintain their standard of living.

Categories With the Largest Increases Are Necessities

One of the factors that has made the recent run of inflation especially challenging is the fact that the spending categories with the greatest price increases are necessities. Inflation has taken place throughout the economy, but over the last 3 years, the biggest spikes have occurred in the categories of transportation (+23.8%), food and beverages (+21.5%), and housing (+16.4%). These categories are difficult for households to cut back on, and the rate of inflation for each has exceeded the average 16% price increase across all items.

Most Adults Report Feeling Stressed Over Price Increases

Faced with these circumstances, U.S. households are feeling the pressure of inflation. More than 90% of adults in every age group express that they feel stressed about recent price increases. The most stressed age group is people aged 18 to 24, who are early in their careers and may not have savings, investments, or credit to fall back on.

Inflation-related stress is also a widespread concern across income levels. In every income bracket below $75,000, more than 95% of people report feeling stressed about inflation. Even among the highest earners making above $200,000, more than 80% feel stressed about recent price increases.

Inflation Has Caused 21% of Adults To Use Credit Cards More

Consumers are adopting a variety of strategies to cope with the effects of inflation. Most commonly, shoppers look to cut costs: more than two-thirds of adults say they look for lower prices or discounts when making a purchase, more than half are eating out less and delaying major purchases, and nearly half are switching from name brand to generic products.

Inflation has also pushed 21% of adults to use credit cards, loans, or pawnshops to help pay their increased costs. Reliance on credit can be a quick way to help make ends meet in the short term, but doing so can be a risky move financially. People who carry balances on their credit cards or pay off loans slowly will ultimately pay more in interest — a risk exacerbated by the fact that interest rates have risen dramatically.

U.S. households are not turning to credit cards in equal measure, however, as there are geographic differences in where adults have started using cards more frequently. States in the Midwest, such as Wisconsin and South Dakota, and in the South, such as Georgia and Mississippi, have the fewest adults reporting an increased reliance on credit cards to cope with inflation.

In contrast, Western states such as Utah, Arizona, Nevada, and California have all seen nearly 1 in 4 adults using their cards more often. But 1 New England state — Maine — sits at the top of the list, with 24.6% of adults reporting an increased reliance on credit cards due to rising prices.

For a breakdown of all 50 U.S. states, here is the report’s complete data table:

Methodology

To find the states where inflation is driving increased reliance on credit cards, researchers at Upgraded Points analyzed data from the U.S. Census Bureau’s “Census Household Pulse Survey” for Week 53, spanning January 4, 2023 through January 16, 2023. Researchers ranked states according to each state’s share of adults that increased their use of credit cards, loans, or pawn shops to cope with price increases in the prior 2 months. Researchers also calculated the share of adults that relied on credit cards or loans to meet spending needs in the prior 7 days, the share of adults stressed about price increases in the last 2 months, and the share of adults concerned about price increases in the next 6 months.

Final Thoughts

Although inflation seems to have reached its peak — and nominal wages have grown in the face of the Great Resignation and tightness in the labor market — Americans continue to struggle as high prices eat into household budgets.

The greatest price increases are seen in categories such as transportation, food, beverages, and housing, all of which are necessities and therefore challenging for consumers to cut back on. In fact, 90% of adults in every age bracket report feeling stressed about these recent price increases, as do 95% of those earning less than $75,000. High earners aren’t exempt, either: among those earning $200,000 or more, 80% report stress over recent inflation.

These concerns have led consumers to cut costs in a variety of ways, from seeking out discounts to delaying major purchases — and 21% report an increased reliance on credit cards. Although credit cards can help in the short term, they aren’t without risk: carrying balances or paying them off slowly can lead to paying more in interest.

Increased reliance on credit cards to cope with rising prices varies by geography, however. States in the Midwest and South see the fewest adults reporting increased use of credit cards, while Western states see the most overall — but 1 New England State tops the list at 24.6%: Maine.