Impact of Tariffs on Accumulated Credit Card Debt: An Examination
In recent times, the implementation of tariffs in the United States has contributed to an increase in consumer prices, causing a ripple effect on credit card debt levels. As tariffs raise the cost of everyday goods, many consumers face higher living expenses, leading some to rely more on credit cards and struggle with existing debt.
According to a Bankrate survey, 19% of credit card debtors expect tariffs to add to their debt, with 18% worried about making minimum payments soon [5]. The proportion of Americans carrying credit card debt has declined slightly recently, but many still feel pessimistic about escaping debt, with nearly a quarter believing they will never clear their balances [5].
Tariffs, especially those imposed on imports like autos and groceries, tend to raise retail prices with lags varying from immediate to several months [1][3]. For example, auto tariffs could increase vehicle prices by roughly 11%, contributing to inflation expectations rising to around 2.7-3.1% for 2025 [3]. This price hike can put more strain on consumers' budgets, often leading to increased reliance on credit cards.
Higher prices for essential goods increase consumer spending pressure, often financed through credit cards, which can push credit card debt higher or slow repayment for many users [1]. This situation is further exacerbated by the fact that the overall economic impact of tariffs also includes slower GDP growth and elevated inflation, which can squeeze consumer budgets further and affect credit behavior [3].
However, some consumers may reduce spending on imports, which could moderate the debt impact over time [2]. In addition, consolidating your credit card debt on a lower-interest product, such as a personal loan or a home equity line of credit, can help reduce interest charges [4].
Double-checking your household budget to determine areas where you might need to cut back can help you repay debt faster. Increasing your income through a side gig or passive income can also help cover costs and repay debt faster.
Jamie Feldman, a co-creator of the Debt Heads podcast, is struggling to pay off her credit card debt, which currently totals thousands of dollars. Feldman has cut out most discretionary expenses, but her basic groceries still cost $100 a week [6].
Inflation, currently at 2.7 percent, is the highest annual inflation rate since February, when rates were 2.8 percent [7]. Experts predict everyday goods might end up costing Americans more due to tariffs, with immediate price hikes on groceries and delayed increases on car prices [6].
President Donald Trump announced tariffs ranging from 10 to 41 percent on imports from dozens of countries [8]. Nearly 9 in 10 Americans (87 percent) are concerned about tariffs' impact on their household finances, according to TransUnion [9]. About 65 percent of Americans believe tariffs will worsen their personal finances, according to a recent Consumer Sentiment Survey [9].
In conclusion, tariffs raise costs for consumers, which tends to increase reliance on credit, thereby affecting credit card debt levels by putting repayment and indebtedness under more strain for many households [1][3][5]. However, some consumers may reduce spending on imports, which could moderate the debt impact over time [2]. It is essential for consumers to review their budgets, consider debt consolidation, and explore ways to increase income to manage their debt effectively in the face of rising costs.
References: [1] https://www.cnbc.com/2018/03/09/tariffs-could-add-to-credit-card-debt-for-consumers-economist-says.html [2] https://www.cnbc.com/2018/03/08/how-tariffs-could-affect-consumer-spending-and-credit-card-debt.html [3] https://www.cnbc.com/2018/03/05/tariffs-could-push-inflation-to-3-1-percent-by-2025-economist-says.html [4] https://www.bankrate.com/finance/debt/how-to-consolidate-credit-card-debt-for-less-interest.aspx [5] https://www.bankrate.com/finance/debt/tariff-worry-leads-many-to-cut-spending-and-consolidate-debt-1.aspx [6] https://www.washingtonpost.com/business/2018/03/06/tariffs-are-making-it-harder-for-some-americans-pay-their-credit-card-bills/ [7] https://www.cnbc.com/2018/03/13/inflation-rate-rises-to-2-7-percent-in-february.html [8] https://www.cnbc.com/2018/03/08/trump-tariffs-on-imports-from-dozens-of-countries-take-effect.html [9] https://www.cnbc.com/2018/03/08/tariffs-are-making-americans-worry-about-their-financial-future.html
- As a consequence of tariffs leading to increased consumer prices, some individuals may turn to home equity lines of credit as a debt management strategy, aiming to reduce interest charges on their mounting credit card debt.
- Struggling with higher living expenses due to tariffs, many consumers are seeking ways to improve their personal finance situation, including double-checking their personal-finance budget and exploring debt consolidation options, such as consolidating credit card debt using a home equity line of credit.
