The Balance Today: News You Need To Know on Aug. 19, 2022

As inflation makes most goods and services more expensive, many of us are relying more on credit cards, evidenced by soaring credit card debt in the second quarter of 2022, according to the Federal Reserve Bank of New York's recent quarterly report on household debt and credit.

The report found credit card debt climbed by $46 billion last quarter, rising 13% from the same period last year—the biggest annual jump in credit card balances in more than 20 years. 

It’s important to note that borrowing on your credit card is more expensive right now—credit card annual percentage rates (APR) are rising as the Federal Reserve raises the federal funds rate in an effort to bring inflation down. Data collected by The Balance shows the average credit card interest rate hit 21.33% in July, the highest rate seen in more than two years. 

If you pay your credit card bill on time every month, you won’t have to worry about a higher penalty interest rate. However, card balances can grow quickly, and even small increases in a card’s interest rate can add up to higher debt costs if you fall behind on monthly payments. 

Minutes from the Fed’s last policy meeting in July suggested rate hikes might be less aggressive in the coming months as inflation has shown signs of easing. But prices (and interest rates) remain high, and it’s still too soon to tell when prices will come down. So this could be a good time to pay down any credit card debt you might already have, and avoid taking on extra debt.