Gas Prices, Inflation Contribute to Increase in Credit Use
First Data Corp.s Spend Trend report has revealed that consumers in the U.S. are increasing their use of credit cards to pay for gas and other basic necessities. The report found that inflation has created a significant jump in prices for food and fuel while income has failed to keep pace.
Credit-Based Purchases Increased 10.7 Percent
The report revealed the dollar volume of credit-based purchases charged grew 10.7 percent in June from one year ago, which represents a very significant jump. Single transactions also grew drastically in this timeframe. According to First Data Corp., the number of transactions in June rose 6.8 percent from a year prior.
Silvio Tavares, senior vice president at First Data, revealed in a Bloomberg report that the large increase probably represents the increase in gas costs over that time span. Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food, Tavares told Bloomberg.
He went on to explain that the lack of wage increases or other options to offset higher prices has left consumers with a cash flow problem. Currently, they feel credit is the only way they can solve it.
Inflation Slowing Pace of Economic Recovery
Household spending is said to account for about 70 percent of the U.S. economy. This means with rising costs of food and gasoline leaving Americans with less money to spend, the pace of economic recovery is slowing.
According to figures from the Commerce Department, after-tax income adjusted for inflation dropped 0.1 percent from January through May. This drop was largely due to an 8.2 percent increase in energy costs and a 2 percent jump in food costs over the same period.
As noted by Tavares, the volume of gas purchases placed on credit cards increased 39 percent in June from a year prior while food purchases went up 5 percent. After seeing the nations credit card debt drop earlier this year, it could very well increase for the long run if prices dont come down.
With economic recovery slowing and the likelihood of add income getting slimmer by the day, its up to the consumer to make adjustments necessary to fund basic necessities. If you find you are in a tough financial predicament but want to reduce credit use, explore different ways to save money in all areas of your life.