LendingTree survey: Credit card debt is up by 30% over the past two years

LendingTree released the results of its survey on Thursday, revealing that 30% of Americans saw an increase in credit card debt over the last two years, driven primarily by inflation and loss of income.

In the study, conducted with data from 1,249 consumers, 48% of consumers indicated that inflation led to the increase in credit card debt, while 34% said income loss was the largest driving factor. The study also found that 30% of consumers were able to increase their credit score during the same two-year period.

According to the study, younger generations and parents suffered more than most. Forty-two percent of millennials and 45% of parents with young children had a difficult time making bill payments during the pandemic. While some consumers saw a rise in their credit scores, one in five consumers indicated they haven’t checked their scores in two years. 

“There was a huge disparity in how Americans were affected by the pandemic financially, no question about it,” said Matt Schulz, chief credit analyst at LendingTree in the press release. “Some folks emerged from the last two years ahead of the game, while others had their financial worlds absolutely devastated.”

A recent study by Capital One found that 58% of consumers turned to loans or dipped into savings to cover expenses in the face of rising prices. Additionally, overall feelings of inadequate financial health have increased.

Only 18% of consumers indicated that income has kept up with the cost of living. Ten percent of low-income consumers reported receiving a non-performance-based raise in the last three months, compared to 20% of middle-income consumers and 30% of high-income consumers.

Turning to credit cards and loans to help cover expenses

With the current economic environment, these findings aren’t surprising. Inflation has reached a 40-year high of 7.5%, gas prices are rising due to Russia’s invasion of Ukraine, and the Federal Reserve is likely to increase interest rates in March to combat inflation. As a result, consumers are turning more to credit cards and loans to make ends meet.

In addition, J.D. Power found that consumers are looking to their financial institutions to help support their financial health. Not only that, but employees are seeking more frequent pay to make monthly bill payments easier through pay cycle alternatives like on-demand and early pay. Fifty-one percent of all workers indicated they’d switch to an employer that offered more frequent pay.

Banks have been putting more emphasis on the financial health of consumers to meet the growing digital banking customer population and to better support clients.

Many large banks, including Chase, Bank of America, and Capital One, have reduced overdraft fees and removed others while introducing more programs and resources for clients to take advantage of.

The increased focus on fee reduction by financial institutions has also been in part to keep up with banking alternatives like PayPal, SoFi, Chime, and even American Express. Consumers have started to turn toward digital-only options due to ease of use, lack of fees, and transparent systems.

Ways to use your plastic to cover expenses

When it comes to using credit cards to cover expenses and avoiding facing growing credit card debt, there are a few things consumers can do. One of the simplest actions, if you’re having a difficult time making on-time payments, is to consider setting alerts on your account.

A slightly more involved action is to utilize a balance transfer. If interest is accruing on a large credit card balance, transfer it to another card that offers a 0% APR for a time. Consumers can transfer the balance from the card with a high interest rate to avoid interest charges and work to pay down the debt.

The increase in line of credit from adding a new credit card to your wallet could even improve your credit scores. By having a larger overall line of credit, you’ll have a lower credit utilization, which is something that contributes to healthy credit scores.

If you do need to use a credit card to cover a bill payment, consider one that offers rewards for doing so. Flat-rate credit cards, like the Wells Fargo Active Cash card, would work well.

Also: When paying bills with a credit card makes sense — and when it doesn’t

The Active Cash earns 2% cash back for every purchase, meaning you’d see a slight return on your spending. Or, if your service provider asks for a fee for paying with a credit card, the 2% cash back would help mitigate the impact.

The card also features an intro 0% APR for new purchases for 15 months (then 14.99% to 24.99% variable). That means you can make your bill payment, suffer less from any potential fees, and have some extra time to pay it off while the balance accrues no interest.