A quarter of U.S. citizens would resort to using credit cards when faced with a $1,000 emergency expense, even as credit card interest rates are elevated amid decades-high inflation.
When asked how they would pay for a $1,000 emergency, 25 percent of respondents to a Feb. 23 survey by Bankrate replied they would finance the spending with a credit card and pay it over time.
This is the largest percentage of people who would use credit cards for this purpose since 2014.
Only 43 percent of respondents said they would fund the $1,000 emergency expense from their savings.
Other survey options to meet emergency expenses included “reduce your spending on other things,” chosen by 12 percent of respondents. Eleven percent said they would borrow money from friends or family, and the remaining 4 percent claimed they would take out a personal loan.
“With 1-in-4 Americans telling us they’d react to a large emergency expense by using a credit card, their timing couldn’t be worse,” Bankrate Senior Economic Analyst Mark Hamrick said in the report.
“On average, credit card interest rates are the highest we’ve seen and are slated to go higher as the Federal Reserve continues to hike. Under the best of circumstances, this debt should be paid before costly interest charges hit the account.”
According to data from Creditcards.com, the national average interest rate on credit cards on Feb. 17, 2021, was 16.12 percent. This jumped to 20.34 percent as of Feb. 22, 2023.
The 2023 Bankrate survey also found that 36 percent of respondents had more credit card debt than emergency savings, which is the highest percentage in 12 years. Last year, the number was at 22 percent.
Men had a higher amount set aside as emergency savings at 51 percent, compared to women at 48 percent. Men also had lower credit card debt at 32 percent compared to women’s 40 percent.
Among millennials, 45 percent had more credit card debt than emergency savings, followed by Generation X with 44 percent, Generation Z with 38 percent, and Baby Boomers with 25 percent.
Overall, only 51 percent had emergency funds or savings exceeding credit card debt. Thirteen percent had no savings or credit card debts.
“It is quite stunning that such a high percentage of adults has no savings and no credit card debt,” Hamrick said.
“Anyone with no such savings, including those without access to credit, risks tremendous stress, or worse, on their personal finances when hit with a significant unplanned expense such as a major home or auto repair.”
The survey was carried out in January with the participation of more than 1,000 American adults.
According to data from the U.S. Bureau of Labor Statistics, annual inflation in January 2023 came in at decades-high 6.4 percent. Annual inflation has remained above 6 percent for every single month since January 2022, far away from the Federal Reserve’s target rate of 2 percent inflation.
According to data from the Federal Reserve Bank of New York, the total credit card balance of Americans grew by $61 billion to hit $986 billion in the fourth quarter of 2022. This is the highest total since 1999.
Connecticut ranked at the top of the states with the highest credit card debt per citizen based on numbers from LendingTree. Residents of Connecticut had an average credit card debt of $9,408, followed by New York with $9,165, New Jersey with $9,044, Rhode Island with $8,728, and Texas with $8,701.
A survey of more than 2,000 American adults published in January by NerdWallet found that 69 percent were worried about their finances over the next year, with 45 percent saying their pay has not risen in the previous 12 months to keep up with inflation.
The average amount of credit card interest paid by households also increased owing to rising revolving credit card debt and the Federal Reserve’s rate hikes.
“Credit card debt is often thought to be the result of frivolous spending, but for many Americans, that’s just not true,” said Sara Rathner, a NerdWallet credit cards expert.
“Consumers are feeling the squeeze of higher prices and interest rates, and paychecks just aren’t keeping up. That’s forcing many to make tough decisions, like going into debt to pay for necessities.”