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As inflation continues to drive up the cost of living, consumers are leaning on credit cards to cope. More than 3 in 5 credit card holders (62%) say they’ve taken some new action with a credit card in the past 12 months as a result of inflation, according to a new NerdWallet survey. And more than half (53%) expect to have to do so in the next 12 months. Actions they have already taken include going into debt to pay for essential purchases like gas or food, using credit card rewards to cover essentials, and opening a new credit card.
NerdWallet’s annual Consumer Credit Card Report analyzes the credit card landscape and how it’s affecting consumer finances. In April 2022, NerdWallet commissioned a survey conducted online by The Harris Poll among over 1,500 credit card holders in which we asked how they’re using their credit cards amid the highest inflation in decades.
We also asked credit card holders some questions to gauge their overall knowledge about credit card options that might be helpful during economically trying times. The survey found significant gaps in consumer understanding about credit cards that could end up costing people money.
Inflation is pushing some consumers to rely more heavily on credit cards: Just over 3 in 5 credit card holders (62%) say they have taken some new action with a credit card in the past 12 months as a result of inflation.
Inflation will continue to affect credit card use: A little over half of credit card holders (53%) expect to have to take new actions with their credit cards in the next 12 months given the increased cost of goods and services.
Many consumers have potentially costly knowledge gaps around how credit cards work: For example, when asked whether it’s true or false that moving credit card debt to a card with a lower interest rate or a 0% interest rate always saves money in the long run, more than three-quarters of credit card holders (78%) answered incorrectly or were unsure.
Many credit card holders don’t know the interest rates on their cards: More than 2 in 5 credit card holders (43%) admit they do not know the interest rate on all of their personal credit cards.
Inflation has boosted reliance on credit cards
A little over half of Americans (56%) have more than 1 credit card, according to the survey, an option that some cardholders may be using to get by. More than 3 in 5 credit card holders (62%) have taken some new action with a credit card in the past 12 months as a result of inflation.
Nearly one-third of credit card holders (32%) say that in the past 12 months they have used a credit card to pay for essential purchases as a result of inflation and have yet to pay that debt off. Just over a quarter of credit card holders (26%) say they’ve relied on a credit card to fund essential purchases in between paychecks as a result of inflation. And 25% say they have redeemed credit card rewards to pay for essential purchases because of inflation.
Others are using different features of their credit cards to free up money. A little over 1 in 6 credit card holders (17%) say they’ve used their credit card’s built-in “buy now, pay later” option over the past 12 months to pay for essential purchases as a result of inflation. And, some credit card holders (11%) say they’ve accepted a loan that is tied to their credit card’s credit limit.
“Your credit card may offer some convenient benefits that can help you save money,” says Sara Rathner, a NerdWallet credit cards expert. “Some cards are offering no- or low-interest promotions, for example, which can be especially helpful at a time when interest rates are up.”
Millennial (ages 26-41) credit card holders are more likely than later generation cardholders to have taken a new action with their credit card over the past 12 months as a result of inflation; 79% say they have done so, compared with 68% of Generation Xers (ages 42-57) and 39% of baby boomers (ages 58-76). Actions they’ve taken include:
Opening a new credit card (33% of millennials, versus 21% of Gen Xers and 9% of baby boomers).
Using their credit card’s built-in buy now, pay later option to pay for essential purchases (29% of millennials, versus 18% of Gen Xers and 6% of baby boomers).
Using their credit card’s cell phone protection benefit to free up money in their budget (27% of millennials, versus 9% of Gen Xers and 3% of baby boomers).
Applying for a balance transfer offer (22% of millennials, versus 11% of Gen Xers and 6% of baby boomers).
Accepting a loan from their credit card issuer that is tied to their credit card’s credit limit (22% of millennials, versus 8% of Gen Xers and 2% of baby boomers).
Inflation will continue to influence credit card use
Inflation’s effect on credit card usage will continue for many, the survey shows. Just over half of credit card holders (53%) expect to have to take new actions with their credit cards in the next 12 months given the increased cost of goods and services. For instance, almost 1 in 5 credit card holders (18%) expect to have to carry an ongoing balance over several months in the next 12 months due to the increased cost of goods and services. Slightly over 1 in 7 credit card holders (15%) expect to have to contact their credit card issuer within that time frame to request a lower interest rate.
Close to half of credit card holders (47%) expect their credit cards to remain manageable and do not foresee having to take any new actions within the next 12 months.
Millennial credit card holders (74%) are more likely than Gen X (62%) and baby boomer (28%) cardholders to expect to take new actions in the next 12 months due to the increased cost of goods and services. Some of the actions that they expect to take within that time frame include:
Contacting their credit card issuer to negotiate credit card debt (25% of millennials, versus 9% of Gen Xers and 4% of baby boomers).
Contacting their credit card issuer to ask about upgrading their credit card to one that earns more valuable rewards (24% of millennials, versus 13% of Gen Xers and 6% of baby boomers).
Charging purchases to their credit card that they don’t know when they’ll be able to pay back (22% of millennials, versus 15% of Gen Xers and 5% of baby boomers).
Using their credit card’s built-in buy now, pay later option (21% of millennials, versus 10% of Gen Xers and 4% of baby boomers).
Applying for a balance transfer offer (18% of millennials, versus 11% of Gen Xers and 4% of baby boomers).
Contacting their credit card issuer to ask about downgrading their credit card to one without an annual fee (18% of millennials, versus 9% of Gen Xers and 2% of baby boomers).
Taking a loan from their credit card issuer that is tied to their credit card’s credit limit (18% of millennials, versus 6% of Gen Xers and 1% of baby boomers).
Many cardholders lack vital credit card knowledge
When asked about different actions that cardholders could take with their credit cards to save money, many answered incorrectly or were unsure. There was uncertainty around such things as how credit card interest works and what kinds of requests you can make of your credit card company.
Cardholders were asked whether the following statements are true or false. Answers may not add up to 100% because of rounding.
1. Credit card issuers make financial hardship plans available to anyone struggling to make payments.
Correct answer: FALSE. Survey answers: False, 18%; true, 46%; unsure, 36%.
Some credit card issuers will temporarily lower interest charges or waive fees through a financial hardship plan for cardholders struggling to make payments due to circumstances out of their control, such as losing a job or experiencing a family emergency. But these programs aren’t available to just “anyone struggling to make payments.” You have to qualify, and approval is far from guaranteed.
2. Moving credit card debt to a card with a lower interest rate or a 0% interest rate will always save money in the long run.
Correct answer: FALSE. Survey answers: False, 22%; true, 53%; unsure, 26%.
Moving debt from one card to another almost always incurs a balance transfer fee, usually 3% to 5% of the amount transferred. If the transfer fee ends up being larger than the amount of interest you would have been charged if you’d left the debt where it was and paid it off there, you won’t save money.
3. If you want to switch to a different card from the same company — for example, to get a lower annual fee or better rewards — you must ask the company to close your original account and open a new one.
Correct answer: FALSE. Survey answers: False, 24%; true, 41%; unsure, 36%.
Credit card holders can request a product change from their issuer, which lets them keep the same account with a new card attached to it. This option can benefit your credit scores since the account history stays intact.
4. Credit card issuers waive late fees.
Correct answer: TRUE. Survey answers: True, 37%; false, 40%; unsure, 24%.
For accounts in good standing, it’s not unusual for a credit card issuer to waive the first late fee, although this outcome is not guaranteed.
5. Credit card issuers allow you to ask for a lower interest rate.
Correct answer: TRUE. Survey answers: True, 50%; false, 22%; unsure, 28%.
Cardholders can contact their credit card issuer to make this request. Not all issuers grant it, but for those who are eligible and carry a balance, it can provide savings.
More than 2 in 5 cardholders (43%) say they don’t know the interest rates on their personal credit cards, the survey found, and almost half (47%) say they don’t know what a reasonable interest rate is for their personal credit score.
“With the cards you already carry, it helps to know where you currently stand. That way, if you need to negotiate for better terms, you have a starting point,” Rathner says. “And if the issuer can’t help you, you can shop around for a card that might be a better fit. Step one of looking for a ‘good’ card is knowing what ‘good’ means.”
6. You can use a credit card without ever having to pay interest.
Correct answer: TRUE. Survey answers: True, 54%; false, 33%; unsure, 14%.
Although “credit cards” and “high interest” are synonymous in some people’s minds, there’s a way to avoid interest on purchases entirely. If a credit card is paid off in full every month, no interest charges will apply.
7. Making the minimum payment every month on a credit card would allow you to pay down debt quickly.
Correct answer: FALSE. Survey answers: False, 64%; true, 27%; unsure, 9%.
Paying only the minimum on a credit card every month can delay getting out of debt for years. When you pay only the minimum, the bulk of the payment may be interest, with only a small fraction going toward reducing the debt you owe.
8. Credit card issuers allow you to ask for an increase in your credit limit.
Correct answer: TRUE. Survey answers: True, 76%; false, 12%; unsure, 13%.
It’s possible for credit card holders to request a higher credit limit. The issuer will look at a variety of factors like income, debts and credit history to determine if they are eligible for one.
How credit card holders can save money
The better you understand how your credit cards work, the better equipped you’ll be to save money on interest and fees while maximizing the benefits of any rewards and perks. A good place to start is by reading your credit card terms and conditions.
“Reading the fine print can feel like homework, but there’s a lot of useful information in there. It’s like a user manual for your credit card,” Rathner says. “Many issuers also highlight card features on their websites, and they may even provide free educational content. This can all help you become a more confident card user.”
Other ways to save money include:
Contacting credit card issuers
Credit card holders can get in touch with their issuers to ask about a lower interest rate, a higher credit limit or getting fees waived. If they’re suffering financial strain, they can ask about hardship programs.
A higher credit limit may not directly provide savings, but it can improve a cardholder’s credit utilization ratio, a key element in credit scores, assuming they don’t add to their balance. As a result, credit card holders may be better positioned to qualify for lower interest rates.
“You may have more power than you realize when it comes to negotiating the card terms you need. It can be as simple as calling the issuer and asking,” Rathner says. “They might say yes to your request, but if they say no, there might be another card out there that you can switch to. Think of it as voting with your wallet.”
Switching credit cards
Credit card holders who will need to carry a balance over a long term can look for one with a lower interest rate. For instance, they could switch from a high-interest rewards credit card to a low-interest option at a credit union or one with a 0% intro APR offer for purchases. (Interest rates at federally chartered credit unions tend to be lower because they are capped.) Cardholders who know what rates their credit cards charge are in a better position to comparison shop for alternatives.
Another option is to change to a credit card from the same issuer by upgrading to one that offers more value in the form of perks or rewards. Downgrading to a no-annual-fee card from the same issuer may also be an option.
A rewards credit card can blunt some inflation effects by returning some value with each purchase. Cardholders get the most value from rewards cards when they pay off their balance in full every month and avoid interest. For those carrying a balance, the high interest rates typically charged by rewards cards will chip away at the value of the cash back or points you earn.
Using credit card benefits to save money
Credit cards often come with money-saving side benefits and perks. A card that offers cell phone protection, for instance, could save hundreds of dollars a year compared with paying a provider for coverage on multiple lines. This benefit typically covers a damaged or stolen device, up to a certain amount, depending on the terms of the benefit. For travelers, airline or general travel credit cards may offer free checked bags or credits that offset the cost of eligible purchases.
Several major credit card issuers also provide merchant-specific discounts that offer additional rebates or rewards on travel, everyday purchases and more. These offers may be found when a credit card holder logs in to their account. For planned purchases, these offers can put money back in cardholders’ pockets.
Mapping out a get-out-of-debt plan
By creating a strategy to get out of debt before it spirals, cardholders can shorten the amount of time and money it takes to pay it off. If their credit is good enough (typically defined as a FICO score of 690 or higher), they may qualify for a balance transfer that allows them to move their high-interest debt onto a card with 0% interest for a year or more. Before applying, compare the cost of the balance transfer fee with what you’d pay in interest without the transfer. The ideal balance transfer credit card will have a $0 annual fee, a balance transfer fee of 3% or less and a 0% introductory APR period that gives you enough time to pay down debt.
For those who have less-than-ideal credit or debts that will take three years or longer to pay off, a debt management plan at a nonprofit credit counseling agency may offer lower interest rates. There’s typically a cost involved, but it’s worth paying if savings will be significantly greater than interest charges over a long term.