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Pros and Cons of Credit Cards in 2022

Credit cards can be very useful in certain circumstances. It’s almost impossible to travel without using a credit card. Hotels and car rental firms require a card when booking.

Having a credit card and using it wisely is not an issue. The problem comes into play when spending goes unsupervised or gets out of control. Sometimes an emergency is the reason for big credit card debt. No matter what the reason, having debt is not a good place to be. The trick is to only use it when absolutely necessary and pay off that balance as soon as possible.

Credit cards can also be useful for building a credit score. However, the strategy is not to load up your cards and pay the minimum on the balance each month. Keep your debt-to-credit-available ratio low and pay your credit card bill on time each month.

The global pandemic had an unprecedented effect on credit card debt. When the economy shut down, many people thought debt would spiral out of control. Instead of driving people further into debt, the pandemic did the exact opposite for many Americans

Government stimulus checks were one part of the puzzle. When that became paired with the fact that people were stuck indoors with limited spending opportunities, suddenly savings were boosted to the highest levels seen since WWII.

Many Americans used their extra monthly cash to pay down their debts. However, that period of prosperity was not to last. As the pandemic was brought under control and people returned to a more normal lifestyle, rapid inflation hit the economy.

The recent spike in prices for gas, and groceries among other necessities has caused havoc for many families. It has been reported that people are now running up high balances on their cards. Revolving credit is now on the rise. Revolving credit mostly includes credit card balances, The Federal Reserve’s monthly credit report said revolving credit accelerated close to 20 percent in April 2022.

America is going backward into debt. The savings made are being reversed and debt is on the rise again. Altogether, consumers paid off a record $83 billion in credit card debt during the pandemic. Now, that’s being reversed. Having a credit line available is a good thing, but using it indiscriminately makes you liable for interest on the loan. 

Glenn Werner, Vice President, Investments for David Lerner Associates says, “Paying off your debts gives you more money to save and invest. That gives you more freedom in the future. If possible, you should avoid getting into debt.” 

Inflation is running at its fastest pace in more than 40 years. Interest hikes are on the horizon. It certainly looks like carrying a credit card balance month after month will soon cost even more than it does now. Annual percentage rates are currently at around 16 percent on average. Experts predict that they may be closer to 19 percent by the end of 2022. 



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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