Credit usage jumped 8.8% during the second quarter of 2021, driven by an increase in revolving credit such as credit cards, according to the Federal Reserve's latest Consumer Credit report.
Revolving credit grew at an annual rate of 10.7% and nonrevolving credit – like mortgage loans, student loans or personal loans – increased by an annual rate of 7.2%. In June alone, revolving credit increased by 22% annually.
Looking at dollar amounts, total debt increased from $4.24 trillion in May to $4.27 trillion in June.
There are several methods to help quickly pay down debt you may have __ as a result of increased credit usage, like using a low-interest personal loan. Keep reading to learn more, and use an online marketplace like Credible to make sure you’re getting the best rate and lender for your needs.
Inflation on the rise
The increase in credit card debt isn't all too surprising, considering the latest increases in inflation. Consumer prices rose 5.4% annually in July, according to the latest report from the Bureau of Labor Statistics. Used car prices rose just 0.2% during that month, significantly less than the 10.5% spike seen in June. The food index rose 0.7%, the energy index rose 1.6% and gasoline prices jumped 2.4%.
The 5.4% increase is significantly higher than the Federal Reserve’s target inflation rate of 2% annually. The Fed has said it doesn't plan to raise interest rates for now as it sees the high inflation rates as transitionary, but experts are beginning to predict the Fed could end up significantly raising interest rates as the economy strengthens.
"Once the Fed determines that employment is at a good level, they will turn their focus to inflation...if there is lasting inflation, then rates will go up — and they could go up a lot," said Melissa Cohn, William Raveis Mortgage executive mortgage banker.
Want to save money to help pay down high-interest debt? Consider taking out a cash-out mortgage refinance while interest rates are low, and potentially lower your minimum monthly payment. Visit Credible to compare mortgage rates and get prequalified without affecting your credit score.
How to pay down debt
As prices across multiple sectors continue to rise, paying down debt could become challenging. Here are a few strategies to help with your debt repayment plan:
- Taking out a personal loan
- Cash-out refinancing
- Comparing auto insurance costs
Take out a personal loan: Taking out a debt consolidation loan at today’s low interest rates can help you pay down high-interest credit card debt. But if you choose this option, be careful to change your spending habits; if you don't, you run the risk of building up credit card debt up once again through monthly expenses with an additional personal loan debt.
If done right, a debt consolidation loan can set you on a plan to repay debt at a lower interest rate. Visit Credible to get started and view personal loan options from multiple creditors at once.
Take out a cash-out refinance: For those with higher amounts of equity in their home, a cash-out refinance could be a viable option to consider. Currently, the average 30-year fixed-rate mortgage is below the 3% mark. Homeowners can pull cash out of their home for debt consolidation and pay off credit cards with the highest interest rate, while reducing the overall interest rate on their home loan.
Some borrowers could even still save on their monthly payments after withdrawing the cash from their homes. The extra cash can also be used for the debt management plan to help make other payments. Check out Credible to compare lenders and see if you can save on your monthly payment by lowering your interest rate.
Compare auto insurance costs: Auto costs have been surging alongside other consumer prices. In July, the price for a used car grew past $25,000.
One way to help lower auto expenses and pay down a car loan quickly is to compare different auto insurance costs. Through an online marketplace like Credible, drivers can comparison shop for multiple policies to see which one best fits them and their financial needs. They can apply the extra cash saved on their minimum payment to help pay down credit card balances.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.