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Americans ramp up credit card usage as high prices continue to bite

<i>Robert Nickelsberg/Getty Images</i><br/>An air traveler uses a credit card to pay for items January 28
Getty Images
Robert Nickelsberg/Getty Images
An air traveler uses a credit card to pay for items January 28

By Alicia Wallace, CNN Business

Americans are continuing to lean on credit cards and loans, as consumer credit surged by $38 billion in April amid the highest inflation in 40 years.

The latest Federal Reserve data on outstanding consumer credit, released Tuesday afternoon, comes after March’s record increase of $52.4 billion. That figure has since been revised downward to $47.3 billion.

Revolving credit, which mostly includes credit card balances, grew at an annualized rate of 19.6% and totaled $1.103 trillion in April, just breaking a pre-pandemic record of $1.1 trillion, according to the report.

But record-high revolving debt isn’t all bad news, said Ted Rossman, senior industry analyst for Bankrate. “Some of this reflects rising consumer spending, which is good for the economy, of course, and also things like population growth and increased card usage (rather than cash).”

“We had a sharp and quick decline in credit card balances because of the stimulus, because of the pandemic, because people spent less, and they paid off debt,” Rossman said. “And now we’re seeing an equally sharp run back up — much faster than something like the financial crisis [when] it took five years to find the bottom and five more to climb back up.”

“This one’s been in fast-forward,” he said.

Despite feeling some unease about the direction of the economy, consumers have continued to spend. However, the goods they’re buying — especially the essentials — have seen sharp price increases amid a period of high inflation.

That spending, especially when it involves credit card debt, “can be a sign of confidence, or it can be a sign of concern,” Matt Schulz, chief credit analyst for Lending Tree, previously told CNN Business. Some retailers have already noticed a split in how people are spending: High earners have continued to buy luxury and pricier items, while lower-income consumers are eschewing the discretionary for the essentials — and cheaper ones at that.

The monthly Fed credit report doesn’t provide detailed breakouts of how the credit is being used or whether outstanding balances are paid off before interest starts to accrue, so the record consumer credit levels might not be as negative as they seem, Rossman said.

“Some of this just reflects more card usage, more e-commerce, more digital payments, people using cash less,” he said. “In some respects, higher credit card balances can reflect the growing economy. You just don’t want it to grow so much that people are falling behind [and] carrying expensive debt.”

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