Historic inflation has reduced the personal savings rate of households across the country.
In August 2019, the average person was saving 7.2% of their disposable income. Last June, the rate fell at 5.1 percent showing how the uncertain economic situation, rising prices and stagnating wages are impacted reduce personal savings.
The decline in savings rates makes households more vulnerable to financial shocks, with inflation constituting a real disturbance in the economy, many have turned to their credit cards.
Highest and lowest amounts of credit card debt
The average credit card balance in the United States is $5,938, with twenty-one states with a higher average.
States with the lowest levels of credit card debt include:
Considering the average worker in July 2022 does $3,748it is easy to see how credit card debt can get out of control once the total amount due is greater than what a person earns in just one month. Taking the 5.1% savings rate recorded in June, we can calculate an average savings rate for private sector workers of around $191. Debt traps can be difficult to escape in the United States due to the extremely high interest rates on a deferred balance that banks are allowed to charge. In some cases, when cardholders see a twenty-four percent APR, they can simply pay the interest so as not to prevent further increases in the balances they owe.
When looking at the other end of the income spectrum, the need for reform couldn’t be more office.
The states with the highest average amounts were:
Alaska ($8,026) and the District of Columbia ($7,077) also have large credit card balances.
Alaska’s high level of debt
Alaska has long been at the top of the devastating list.
In 2008, many were sounding the alarm when average debt levels were “$3,384 for each borrower – $1,200 more than any other state.“Now, with rates down slightly from those records, many believe systemic change is needed to avoid further financial stress.
Executives decide to cap interest rates on credit cards and payday loans
According to New York Federal Reservethe number of credit card holders who became delinquent increased from 3.05% in Q1 2022 (January-March) to 3.35% in Q2 2022 (May-July). Compared to Q2 2021, credit card amount owed increased by thirteen percentthe largest increase in twenty years.
Some lawmakers like Senator Bernie Sanders have proposed legislation that would cap interest rates, or APRs, for credit cards and payday loans at Fifteen percent. The highest rate a company can currently charge is thirty-six percent. This industry creates debt traps that do not prevent borrowers from accumulating debt beyond what they could reasonably repay without add a significant amount of interest to the main equilibrium.
Senator Sanders’ legislation known as the Moneylenders Prevention Act “would establish a national usury rate of 15% on credit cards and other consumer loans, bringing parity with credit union loans.”
Sanders justifies his position by claiming that the the people of the nation should be able to get credit at the same rates available to banks ascan borrow from the Federal Reserve for a quarter of a percent.” The bill was co-sponsored in the previous session of Congress by Rhode Island Senator Sheldon Whitehouse. The bill never left the committee.