Study: Rising Interest Rates and Fees Lead to Increased ‘Persistent Debt’ Among Americans

According to a recent report by the Consumer Financial Protection Bureau (CFPB), American cardholders paid a staggering $130 billion in interest and fees in 2022. This amount, which includes more than $105 billion in interest charges and around $25 billion in fees, is the highest recorded in the CFPB’s data history. The report comes at a time when credit card debt has reached a record $1 trillion, and interest rates continue to rise due to inflationary pressures from the Federal Reserve.

The rising debt levels and higher interest rates have made it increasingly difficult for many Americans to manage their finances. CFPB director Rohit Chopra emphasized the need for more options for cardholders to switch to cards with lower interest rates to alleviate the burden of credit card debt.

The report reveals that the average cardholder had $5,288 in credit card debt at the end of 2022, a 24% increase from the lows of 2021 and a return to levels seen in late 2019. Cardholders with prime credit scores between 660 and 719 had the highest debt, with average balances reaching $9,135.

A significant portion of credit card debt, 82%, was revolving, meaning that consumers were carrying a balance into the next month. Only 18% of consumers were able to pay off their full balances by the due date. This is a significant shift from 2020, where 51.3% of consumers carried a balance into the next month and 48% were able to pay off their balances in full.

The CFPB warned that the number of people facing persistent debt could increase if interest rates remain high. The average APR on private cards was 27.7% at the end of 2022, a 2 percentage point increase from the previous year. Interest rates on general-purpose cards also saw a jump from 18.8% in mid-2020 to 22.7% in 2022.

The CFPB report found that more Americans were falling into delinquency, facing higher fees and interest charges, with those with the lowest credit scores being the most vulnerable. Nearly 10% of credit card users found themselves in “persistent debt,” where they were charged more in interest and fees than what they paid toward their principal.

To address these issues, the CFPB has proposed rules to reduce junk fees and promote a fairer marketplace. The proposed rules aim to lower excessive credit card late fees and make it easier for consumers to switch banks. By eliminating or reducing these fees, the CFPB hopes to alleviate the financial burden on consumers.

Overall, the report highlights the challenges faced by American cardholders in managing their credit card debt and the need for more accessible options for lower interest rates. As interest rates continue to rise and debt levels increase, finding ways to alleviate the burden of credit card debt becomes more important than ever.


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