More and more consumers use their credit cards to buy necessities like gas and food, according to a recent report. Americans are using plastic to make up the difference between stagnant wages and rising prices, which could soon put them deeper in the hole.
“People are dealing with higher prices by charging. Yes, it’s that simple,” says Silvio Tavares, an analyst at FirstData, the largest credit card processing company in the country.
Spending is up, which is usually good news. Credit card purchases in June 2011 were 8% higher than they were a year ago, FirstData finds.
But that’s not because consumers are feeling flush. The increase in credit card spending has more to do with the increasing cost of necessary items. Gasoline alone is 30% more expensive on average in June than it was the same time last year, Tavares points out.
And it’s not as though people are buying with plastic and then paying off their balances at the end of the month, making their credit card purchases basically the same as paying with cash. No, the large increase in spending corresponds to higher balances that carry over month-to-month.
Yes, that means many more people are paying 13% or 14% interest on basics like eggs and milk. Revolving balances—the credit industry’s term for the unpaid credit card balance at the end of the month—grew by over 5% in May, Tavares says.
That’s the first big uptick in almost two years. Since the recession hit, millions of Americans have worked hard to pay down their credit card balances and keep them down. In May and June, consumers were forced by inflation to reverse themselves.