Nearly half of all Americans are falling deeper in debt as inflation continues to boost costs

Higher prices have taken a toll.

In an economy that has produced the highest inflation rate since 1981, Americans are struggling to keep up with expenses and are putting less money aside for emergencies or long-term financial goals, several recent studies show.

Nearly 40% of consumers cannot put any money at all into savings, according to a recent analysis of household financial health and readiness by the American Consumer Credit Counseling, while about 19% said they had to reduce their savings rate.

As of the second quarter of 2022, 48% of consumers said the rising cost of basic necessities impacted their family’s lifestyle, a steep jump from 39% in the first quarter.

“The pandemic, wars overseas and other world events have had unprecedented effects on our society when it comes to household finances,” Allen Amadin, president and CEO of American Consumer Credit Counseling, said in a statement.

“Consumers have been going through many different financial phases in a very short period of time forcing them to pivot several times accordingly to the challenge,” he said.

It may get worse before it gets better

In order to make ends meet, 43% of Americans expect to add to their debt in the next six months, especially young adults and parents with young children, according to a separate study by LendingTree.

Most will rely on credit card debt to bridge the gap between what they need and what they can afford, the report found.  

Already, the rise in borrowing, together with auto loans, student debt and mortgages, propelled total household debt to a record $15.84 trillion at the beginning of the year.

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“The truth is that debt can be either a sign of confidence or struggle,” said Matt Schulz, LendingTree’s chief credit analyst. 

“Many people take on debt because they feel good about their financial situation and aren’t too worried about paying a little interest if it gets them what they want or need,” Schulz said. “Plenty of others take on debt because they have to.

“There’s no question that both situations are happening right now,” he added.

Do you consider yourself financial healthy?

In the last year, the number of banking customers who consider themselves “financially healthy” has plummeted, an indication that inflation is starting to impact most people’s economic wellbeing.

Americans’ overall satisfaction with their financial condition now stands at a 12-month low, according to J.D. Power data, while those who classify themselves as financially unhealthy is as high as 64%.

That drop in overall financial health is largely due to a borrowing more and saving less with fewer safety nets in place, including emergency funds and insurance coverage, and the impact that has on their creditworthiness.

Are you financially fragile, or could you soon be? Take this quiz to find out.

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Sophie Tremblay

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