Americans Have Borrowed Over $1 Trillion in Credit Card Debt. Here's What to Do if You're One of Them

Temperatures aren't the only thing breaking records this summer. For the first time ever, credit card balances have topped $1 trillion -- and show no signs of coming down. A tumultuous economy in past years has put many Americans in a difficult position, between high inflation and the interest rates meant to slow the economy. Read on to learn more about how we got here and what to do now.

Borrowing to live

As the price of necessities rises, workers are being forced to spend more of their earnings just to keep their heads above water. And when budgets are already stretched thin, it's not surprising that some Americans are going into debt just to pay the bills.

For the last two years, everyone has been talking about inflation. Whether you've seen gas prices jump, "shrinkflation" reduce your normal grocery haul, or used vehicle prices soar, inflation has hit nearly every major spending category. The inflation of recent years has hammered American workers by upping the price of basic necessities.

Wages tend to trail inflation, so many households are over the edge of their budgets while waiting for their income to catch up. The simple math is that when expenses exceed income, the deficit needs to be made up somewhere. For many households, the easiest option is to pay for necessities with a credit card -- and carry a balance in the short term.

Balances are likely to grow

Unfortunately, those who borrow during peak inflation will continue to face economic headwinds as the Federal Reserve fights inflation by increasing interest rates. As a result, balances will compound at an even quicker rate than before.

The Federal Reserve, tasked with managing post-pandemic runaway inflation, uses interest rates to cool the economy down. By raising rates, it becomes harder for banks and consumers to borrow money, and in theory reduces big-ticket purchases like homes and new cars. However, for consumers that are already carrying variable-rate debt, the results can be devastating.

Most credit cards offer a variable interest rate, meaning the rate you pay on the card is related to interest rates throughout the economy. When a credit card issuer raises interest rates while you're carrying a balance, that balance grows at an even faster rate than before. And when rates are rising like they are now, that can increase your minimum payment and put you in a difficult situation.

Here's what you can do

If you are carrying a large balance on your credit card, and are in a position where you cannot pay it off, you still have options.

With a balance transfer credit card, you can transfer some or all of your existing debt onto one card offering up to a year (or more, for some cards) of no interest charges. This type of card may offer some breathing room, but you must carefully read the terms and have a plan to pay off the debt during that time. You may also be able to negotiate your interest rate with a lender based on your payment history or financial circumstances.

For many Americans, the last few years have been difficult financially. Inflation forced many into debt, and rising interest rates are making it difficult to escape. Borrowers are not completely out of luck, however, and taking the right steps today can put you back on track for a debt-free future.