Consumer Debt Hits Record $16 Trillion as Credit Card Use Surges During Inflation. Here's How to Stay Safe

At a time when credit card balances are rising, it's important to protect yourself from credit card debt as much as possible.

Over the past year, U.S. consumers have grappled with sky-high living costs as inflation has hit everything from gas to groceries to utility bills. And not surprisingly, their credit card balances are higher than they've been in over two decades.

The New York Federal Reserve recently released second quarter data on U.S. household debt, and it found that credit card balances rose 13% over the past year. That's the largest percentage increase in more than 20 years.

All told, Americans are now sitting on $100 billion more in credit card debt than they did a year ago. And until living costs start to come down, the problem is only apt to get worse.

Adding insult to injury

Credit card debt can be financially harmful because of the interest that tends to come with it. And these days, carrying a balance could lead to even more financial upheaval.

The Federal Reserve has been imposing interest rate hikes in an effort to slow the pace of inflation. But that's driving borrowing costs up across the board. And so now, consumers who rack up credit card debt risk getting stuck with even higher interest rates.

Worse yet, credit card interest rates aren't set in stone. Those with existing balances could end up paying more interest on them if that debt continues to linger for months on end.

How to shed your debt

Many people have understandably been falling back on credit cards to cover their essential bills. But carrying a balance -- even a small one -- could mean wasting money on interest rather than putting money into a savings account or using that cash for other purposes.

If your credit card balance has gone nowhere but up over the past year, it's important to try to break that cycle. First, make sure you're following a budget so you're aware of what you're spending money on. The simple act of setting up a budget can be eye-opening, because it might lead to that "a-ha" moment when you realize there are things you're buying you can actually cut back on, or cut out altogether.

Next, see if it's possible to boost your income. The gig economy is booming these days, and a second job could put a nice amount of money in your pocket -- money you can use to chip away at your existing credit card debt.

Assuming you're able to start paying off debt, take a look at your various balances and see which ones are costing you the most in interest. From there, you can look at paying off your balances from highest interest rate to lowest.

Another option is to do a balance transfer, where you move your various balances onto a single card with a lower interest rate. Many balance transfer offers come with a limited period of 0% interest, so that's a good way to buy yourself some breathing room as you pay your debt down.

Looking forward

You might manage to pay off some or all of your existing credit card debt through careful money management, a side job, and the right strategy. But it's just as important to steer clear of credit card debt going forward, especially since higher-than-average living costs could be with us for a while.

In that regard, a good bet is to stick with the budget you set up. If you map out exactly what you can afford to spend in each expense category and stick to those limits, you might manage to avoid future debt.

In fact, a good practice is to only charge expenses on a credit card if you can afford to pay your bills in full each month. Granted, when living costs start soaring and you can't make ends meet on your paycheck alone, running up a credit card tab may become necessary. But if you're able to limit your spending to what you can afford to cover each month based on your earnings alone, you'll avoid the stress and expense of racking up interest.

It's too soon to say how long we'll be dealing with rampant inflation. The Fed is trying to cool things off by moving forward with interest rate hikes, but it could take months for living costs to come down in their wake. Until then, do your very best to whittle down your existing credit card debt and avoid adding to it.