How Inflation Has Affected Credit Card Use by Region

Written By Aaron Sarentino
Jan 20, 2023
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More and more Americans are racking up credit card debt as the recent inflation pushes up the cost of living nationwide. 

According to a recent poll by CreditCards.com, 60 percent of credit card holders have been carrying balances on their cards for at least 12 months.

Experian used regional inflation data from the U.S. Bureau of Labor Statistics (BLS)to analyze how every state’s credit card usage has changed.

According to Experian and the BLSregions that experienced slower growth in consumer prices had more growth in credit card usage.

Before we get into the numbers, let’s first understand the correlation between inflation and credit card debt. 

How Does Inflation Affect Credit Card Use?

Inflation is a scary word you’ve probably seen or heard being discussed on the news or in online forums. Credit card debt is another scary word (or 3) that hits a bit closer to home. 

As it turns out, the two are intricately linked.

Inflation, which refers to the general increase in the price of goods and services over time, can significantly impact credit card use in different ways. 

First, when prices of commodities go up, it can become more difficult for Americans to afford the things they need, and they may be more likely to rely on credit cards to make ends meet.

 Second, high inflation can lead to decreased purchasing power, so even if you want to buy something, you may not be able to afford it as easily as you could before. 

This rings true for everything from food to rent to gas as businesses, retailers, service providers, and gas stations seek to make up for increases in fuel prices, hiccups in supply chains, and shortfalls in labor. 

Last but not least, Inflation affects the interest charged on credit cards indirectly. 

The Federal Reserve typically responds to high inflation by raising interest rates. According to the Fed Reserve, the average interest rate for a credit card was 16.65 percent in the second quarter of 2022 and 18.43 percent in the third quarter. 

When interest rates go up on credit cards, loans and lines of credit with variable annual percentage rates follow suit, and you have to pay more on existing debts.

When opening new credit accounts or applying for new loans, you face a higher cost of borrowing.

Higher credit use plus steep interest rate hikes can be challenging for borrowers, making it harder for consumers to repay debts on time. This, in turn, can affect future credit ratings and loan approvals.

So, Which States Have the Highest Credit Card Usage Growth?

Save for Alaska, South Dakota, and Wyoming, credit card usage was up more than 7 percent for the year ending June 2022 in all other states.

  • Northeast 

Credit card usage growth was 9.92 percent from Q2 2021 to Q2 2022, while CPI growth was 7.63 from June 2021 to June 2022.

This was the lowest growth in consumer prices relative to other regions. 

Higher gas prices are especially difficult for Northeastern consumers, who tend to dig deeper into their pockets because of their distance from oil-producing states.

At $58,532 per capita, Massachusetts led both the region and the nation with the top personal consumption expenditure in 2021.

  • Midwest 

Credit card usage growth was 9.87 percent from Q2 2021 to Q2 2022, while CPI growth was 9.5 percent from June 2021 to June 2022. 

Consumers’ credit card usage in Midwestern states grew the second-fastest in the nation. 

At 10.94 percent, Michigan had the highest growth in credit card usage in the Midwest from June 2021 to June 2022.

  • West

Credit card usage growth was 9.81 percent from Q2 2021 to Q2 2022, while CPI growth was 8.75 percent from June 2021 to June 2022. 

The West had the second-highest consumer price increases from June 2021 to June 2022. 

However, for growth in credit card use, they were behind two other regions.

California residents who used their credit cards 11 percent more over the past year – the nation’s highest increase—also face the highest prices at the pump due to higher state taxes on gas and markups based on California’s distance from the oil-producing Gulf Coast.

Idaho and Utah led the country to the biggest growth in personal consumption expenditures. Consumer spending in the two states grew by 16 and 16.3, respectively, in 2021.

  • South 

Credit card usage growth was 8.96 percent from Q2 2021 to Q2 2022, while CPI growth was 9.84 percent from June 2021 to June 2022.

At 15.6 percent, Florida was the third-highest state for increased personal consumer spending growth since 2021. The spending was mostly on food services and accommodation. 

At $36,445 per capita in Mississippi, this was the lowest overall personal spending in the country.

Managing Credit During Inflation  

Managing your household finances when inflation is high can be difficult, but the following strategies will help you stay ahead of the rising cost of living:

  • Create a budget – Having a budget in place can help you keep track of your income and expenses and ensure that you are spending within your means. When inflation is high, it’s especially important to make sure that you are not overspending on discretionary items and that you are setting aside enough money to cover essential expenses.
  • Prioritize saving – When inflation is high, it can be difficult to keep up with the rising cost of living. Prioritizing saving as much as possible can help you build up an emergency fund that you can draw on if needed.
  • Maximize credit card rewards – Look for a card that offers cash back or rewards in categories where you spend a lot.
  • Prioritize your most expensive debts – Paying off accounts with the highest interest rates first is particularly important during inflation.
  • Consolidate your credit card debts with a balance transfer card – A balance transfer card can give you a reprieve from the sky-high interest rates characteristic during periods of inflation.
  • Consider fixed-rate debt – If you need to borrow money, look into fixed-rate debt. With fixed-rate debt, your interest rate and payments will remain the same, regardless of changes in inflation.
  • Review and adjust your investment portfolio – Inflation can have an impact on your investments. Consider reviewing your portfolio and make sure it’s well-diversified, including having some of your assets in stocks and bonds that can perform well during inflation.
  • Look for ways to increase your income – If you’re able to increase your income, it can help you keep up with the rising cost of living. Look for ways to earn more money, such as getting a raise, starting a side hustle, or renting a spare room.
  • Be mindful of costs when shopping – When inflation is high, it can be hard to keep up with the rising cost of goods and services. One way to reduce spending is by being mindful of costs when shopping. Look for sales, coupons, or discounts to help you save money.
  • Review your bills and subscriptions – Review your bills and subscriptions regularly to see if you can reduce expenses. Canceling or negotiating a better rate on services you don’t use or need can free up more money for you to use on other things.

Conclusion 

It’s hard to get out of credit card debt when you’re spending on necessities that got you there in the first place.

But with the right strategies in place, you can navigate high inflation and still be able to manage your household finances.

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