Three years into the COVID-19 pandemic, consumers have begun to revert to pre-pandemic spending habits, according to a new TD Bank survey. When coupled with runaway inflation and rising interest rates, overspending has the potential to push Americans further into debt on high-interest credit cards.
Compared to last year, cardholders are now spending more money on dining out and purchasing tickets to entertainment venues. TD Bank attributes “pent-up demand” from pandemic-era lifestyle restrictions to increased discretionary spending.
“Various factors affect household budgets, so it’s more important than ever for consumers to be vigilant about tracking their spending and using credit responsibly,” said Paramita Pal, head of U.S. bank cards at the Bank. TD.
The survey findings are in line with recent data from the Federal Reserve Bank of New York, which found that credit card debt grew at a record pace in the fourth quarter of 2021. This suggests Americans are more reliant on plus high interest rates. credit cards to address overspending behavior.
Keep reading to learn more about TD Bank’s Consumer Spending Index, as well as how to combat overspending by consolidating debt and using credit card rewards. You can visit Credible to browse a range of financial products, from debt consolidation loans to cash back credit cards.
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Spending hike fueled by record price inflation
More than half (54%) of consumers surveyed by TD Bank admitted that shopping is the main reason they spend too much. The data also suggests that shoppers are slowly returning from online shopping to physical retailers, with 29% of consumers attributing their overspending to in-person purchases.
Groceries were the top spending category among survey respondents, with inflation pushing up the price of food at home by 8.6% a year in February, according to the consumer price index (CPI). . Pal said that with the cost of living expenses rising, it’s “more important than ever” for buyers to be vigilant about their use of credit.
“Nearly a quarter of rewards cardholders surveyed said they let their rewards expire, mostly because they forgot about them,” Pal said. “Smart spenders take advantage of card programs that make it easy to redeem cash or points, and have no expiration dates for rewards.”
TD Bank estimates that consumers could save about $77 a year in food expenses if they used a rewards credit card that offers 2% cash back on groceries. If you’re considering opening a rewards credit card to earn money off your monthly expenses, you can visit Credible to compare offers from multiple credit card issuers at once.
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Recent rate hikes could make credit card spending more expensive
In March, the Federal Reserve implemented the first of several rate hikes scheduled for 2022 to offset soaring inflation. Consumer prices rose 8.5% a year in March, according to CPI data, well above the Fed’s 2% target. But interest rate hikes can increase the cost of borrowing on a number of financial products, including credit cards.
“While rising interest rates have garnered attention, it’s important for consumers to understand the real impact on their credit card bill,” Pal said.
A cardholder making only the minimum payment on a $5,000 balance would see only a minimal change in their monthly bill if their target rate increased by 25 basis points. But making the minimum monthly payments on your credit cards is an expensive way to get out of debt.
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“That said, we recommend that consumers pay their balance in full each month to avoid interest charges and any negative impact on their credit score,” Pal added.
If you’re only paying the minimum balance owing on your credit card balances, you might consider consolidating it into a fixed-rate personal loan. Credit card consolidation has the potential to save some borrowers thousands of dollars in interest charges over time, while paying down their debt in predictable monthly installments.
You can visit Credible to compare credit card consolidation loan rates for free without affecting your credit score.
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Buyers expect to buy now, pay later – but there are risks
Buy Now, Pay Later (BNPL) financing allows consumers to split large purchases into smaller installments at checkout. While some BNPL providers offer interest-free payment plans, some charge high interest rates and high late fees. Additionally, BNPL can lead to the temptation to overspend on impulse purchases.
Nearly a third (31%) of survey respondents have used BNPL, including 45% of millennials. The vast majority (81%) of BNPL users plan to use this method of financing again within 12 coming months.
TD Bank spokesman Mike Rittler said BNPL “can be a useful tool in making big purchases more accessible” by allowing consumers to spread out payments over a longer period.
“But like any form of borrowing, it is important that consumers fully understand the terms and repayment schedules, in order to avoid going into debt, paying unnecessary interest and spending beyond their budget,” Ritter said.
Separate data suggests that some buyers may already be feeling the negative effects of BNPL plans. A recent survey found that 30% of BNPL users struggled to make their payments, with many skipping essential bills such as rent, utilities and childcare to avoid payment defaults. payment.
If you can’t juggle your BNPL obligations, you can consider consolidating multiple debts into one monthly payment with a personal loan. You can browse the current personal loan rates in the table below and visit Credible to learn more about debt consolidation.
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