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The Worst Inflation of All: Record Levels of Debt
Hal M. Bundrick, CFP

High consumer prices are one thing. Inflation has taken its toll on most household finances. But add high interest rates on top of soaring consumer debt, and the financial pressure increases even more.

How soon should you take action if you're struggling to pay your bills on time? Days not weeks.

Rising debt and delinquencies

Credit card balances increased $61 billion in the fourth quarter of 2022 to $986 billion, surpassing the pre-pandemic high, according to an analysis released by the Federal Reserve Bank of New York. It's the most significant debt gain in the history of the New York Fed's data, compiled since 1999.

And timely payments are becoming an issue. "The share of current debt becoming delinquent increased again in the fourth quarter for nearly all debt types," the report said.

In particular, the Fed noted that younger borrowers — in their 20s, 30s and 40s — were struggling to keep up with monthly payments:

"Some of these borrowers are struggling to pay their credit card and auto loans even though payments on their student loans are not currently required. Once payments on those loans resume later this year under current plans, millions of younger borrowers will add another monthly payment to their debt obligations, potentially driving these delinquency rates even higher."

Financial issues take a mental toll

A September 2022 survey conducted by AnalyticsIQ found that inflation had a moderate or greater financial impact on 76% of respondents. And worries were mounting, particularly among women.

Anxiety had risen by 89% among the respondents, and stress had increased by 97%, while life satisfaction (45%) and contentment (44%) had fallen. According to the survey, women were experiencing 25% more stress and 28% more anxiety than men.

Let's all find a way to feel better.

Retail therapy revised

It's a real thing. Shopping can make us feel better. Research indicates that the shopping environment, browsing items, interacting with sales clerks and choosing among available items may all reduce sadness and stress. But spending more money when finances are tight can compound the debt issue.

Consider a new spin on "retail therapy." Perhaps you don't have to buy anything.

Shopping but not spending might help boost your mood. A 2014 study published by the Journal of Consumer Psychology found that sadness was reduced when consumers made shopping choices — whether they bought something or not. You could develop a wishlist of things you might consider purchasing when money isn't so tight.

The psychological trick of "status quo bias" can work for us rather than against us. That's the tendency to put off decisions or complicated choices. (Think of choosing investments in your 401(k) plan.) In the "retail therapy" context, when you find something tempting while shopping, try to delay the purchase decision.

"I'll think about that tomorrow" might be the mental nudge you need to avoid spending money.

Carry cash or use a debit card when shopping to limit expenditures further. Unlike buying things on a credit card, with cash or debit, you can't spend what you don't have. By using available cash when shopping, even for everyday expenses, you will likely spend less on impulse items and hunt for bargains.

Identify debt leaks

Have you ever thought, "How did my credit card bill get so high?" You might be surprised at how the little items add up. Or perhaps it's the larger purchases you made on the spur of the moment.

Review your credit card statements and group similar purchases to see the impact of everyday decisions — or those bigger splurges you've already forgotten about but are still paying for.

It can help you identify the future spending you might be able to do without.

Get help in days, not weeks

If you've done your best to cut back on credit purchases and are still losing ground financially, it may be time to get some help. A visit to a nonprofit credit counseling agency might be the answer.

"There's nothing wrong with living paycheck to paycheck, but if you're spending more than you're earning, you're already in trouble. You can't borrow yourself out of debt," says Michael Sullivan, a financial educator with Take Charge America, a nonprofit credit counseling agency.

He says many people simply freeze when they get in a debt bind.

"By the time they call us, with credit issues, for example, most of them have had this crisis going on for a month or more. They're very often — too often — 90 days late on payments. It's real hard to help somebody dig out when they start out 90 days late," Sullivan says.

Don't let debt fester.

"If you're looking for help, you need to call within days."






Hal M. Bundrick is a personal finance writer and a NerdWallet authority in money matters. He is a certified financial planner and former financial consultant and senior investment specialist for Wall Street firms. Hal advised families, business owners, nonprofits and trusts, as well as managed group employee retirement plans in the South and Midwest. Hal now works to make financial topics understandable and jargon-free.

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