Here's what's happening in the personal finance space this month, how it might impact you and what you can do about it.
Credit Card Debt and Interest Rates Are at an All-Time High
Bouncing back from a steep decline at the beginning of the pandemic, credit card debt has reached an all-time high, according to the Federal Reserve Bank of New York. In its most recent report, the bank says that total credit card debt in the U.S. hit $986 billion in December 2022―that's an increase of $61 billion from the previous quarter and $130 billion year over year.
Credit card interest rates have also reached a record high since the government began tracking them in the 1970s. In the fourth quarter of 2022—the latest data available—the average rate for all cards was 19.07%. The previous high was 18.9% in 1985. Experts expect the average rate to exceed 20% for the first time in 2023.
Why It Matters
American consumers have more credit card debt than ever before, and it's more expensive than it's ever been. With fears of a looming recession this year, some cardholders may wind up missing payments they can no longer afford, which can have a negative effect on their credit.
What You Can Do
- Read up on different ways to pay off credit card debt.
- Consider whether a debt consolidation loan or balance transfer credit card is right for you.
- Think about consulting with a credit counselor to improve your debt management.
- Learn about credit card hardship programs.
Consumer Financial Protection Bureau Proposes a Rule to Rein in Credit Card Late Fees
The Credit CARD Act of 2009 banned excessive late fees on credit cards, but card issuers are still allowed to charge as much as $41 for a missed payment, according to the Consumer Financial Protection Bureau (CFPB).
Now, the federal agency has proposed a rule to limit late fees to just $8, dropping the automatic annual inflation adjustment for the fee and banning late fee amounts above 25% of the required payment. The CFPB is currently taking comments from the public on the proposals.
Why It Matters
According to the CFPB, the proposed rule could save Americans as much as $9 billion each year.
What You Can Do
- Consider submitting a comment to voice your opinion by emailing 2023-NPRM-CreditCardLateFees@cfpb.gov. Include Docket No. CFPB-2023-0010 or RIN 3170-AB15 in the subject line of the message.
- Learn about how even one late payment can damage your credit.
- Set up automatic payments to avoid accidentally missing a payment.
- Read up on what to do if you've missed a payment.
Inflation Expected to Remain High
After a brief dip in prices in January, the Bureau of Labor Statistics reported an increase in February of 0.4% for all items in the core Consumer Price Index (CPI), which excludes volatile food and energy, from the previous month.
Year over year, prices were up 5.6%, down from the 40-year high of 6.6% recorded in September 2022, but still far from the Federal Reserve's target of 2%.
Unfortunately, the Federal Reserve Bank of Cleveland expects the core CPI to increase again in February by 0.45%.
Why It Matters
Further increases in the inflation rate could increase the odds of an economic recession and impact household budgets. Additionally, the Federal Reserve has signaled that it will continue to raise interest rates to combat inflation, making borrowing more expensive.
What You Can Do
- Check the Bureau of Labor Statistics CPI page on March 14 for February inflation numbers.
- Read up on how inflation works.
- Research ways to fight inflation and save money.
- Understand how inflation impacts your credit card debt.
Federal Reserve Expected to Raise Interest Rates Again in March
As inflation continues to persist, the Federal Reserve is expected to raise its federal funds rate once again in its March meeting.
In fact, analysts at both Goldman Sachs and Bank of America have said they expect the federal agency to hike its rate three times this year, up to a range of 5.25% to 5.5%—the rate is currently 4.50% to 4.75%.
Why It Matters
The federal funds rate indirectly influences the interest rates lenders charge on short-term debts, such as credit cards, personal loans, auto loans and even adjustable-rate mortgages.
Rising interest rates can tamp down borrowing and spending, which can help bring down the inflation rate. But it also makes borrowing more expensive for consumers, whose debt has reached record levels.
What You Can Do
- Learn how the federal funds rate can impact your finances.
- Develop a strategy for paying off debt.
- Read up on how to deal with high mortgage rates.
- Consider whether a debt consolidation loan or balance transfer credit card is right for you.
Recession "Soft Landing" Remains a Possibility
The U.S. economy has not yet entered into a recession, at least as determined by the recession-watchers at the National Bureau of Economic Research, but many experts believe a recession is likely to begin in 2023.
That said, some economists believe that the U.S. could experience what's called a soft landing, meaning that the recession would have less of an impact than experts and consumers have feared.
As evidence of the possibility, economists point to the Federal Reserve's efforts to reduce borrowing and spending through higher interest rates, as well as the record number of job openings, which reached 11 million in December. The hope is that instead of eliminating existing jobs, employers would cut job vacancies to maintain a low unemployment rate.
Why It Matters
An economic recession can have a sweeping effect on consumers, resulting in widespread job losses, reduced spending power, business closures and more. While a soft landing is possible, consumers should still be prepared for a worse outcome.
What You Can Do
- Read about what occurs during a recession.
- Learn how to prepare your finances for a recession.
- Consider how to manage your investments during a recession.
- Start building your emergency fund.
March Is Women's History Month
In 1987, Congress declared March to be women's history month. This is a good time to celebrate and learn about the vital role women have played in U.S. history, and it's also a good time to remember the challenges women continue to face, particularly when it comes to finances. The following articles can help you learn more:
Good Credit Can Contribute to a Healthy Financial Plan
While there are aspects of your financial situation that are outside of your control, building and maintaining a good credit score can help you weather challenges and save money in the long run.
With Experian's free credit monitoring service, you'll get access to your FICO® Score☉ and your Experian credit report. With this information in hand, you can gauge your credit health and target areas of your credit profile that you can improve over time. And with real-time alerts whenever your report is updated, you can spot potential issues and fraud and address them quickly.