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Amid sharp interest rate hikes, credit card balances can be costly for consumers

LEILA FADEL, HOST:

Life has become pretty expensive lately. The price of groceries, utilities, even public transportation all shot up last year. You can, of course, charge all these expenses to a credit card, but the balance you keep could cost you a lot these days. NPR's Arezou Rezvani reports.

AREZOU REZVANI, BYLINE: Thirty-one-year-old Evan Laudenslager is many things. He's a New Yorker. He's a studio manager for a fine art photography lab. And he's also been carrying around an uncomfortable but familiar secret.

EVAN LAUDENSLAGER: I do feel that I suffer in silence with my debt.

REZVANI: Laudenslager says he's sharing his story to highlight the financial burdens young people are facing. He's about $75,000 in the hole. It's a combination of student loans, medical and credit card debt, and it's changed his life.

LAUDENSLAGER: There are things that I've had to give up, and there are things that I've had to write off. I can't see myself being able to buy a house. If my partner and I decided that we wanted to start a family, it's really impossible for me to imagine being able to afford that.

REZVANI: At the height of the pandemic, he was able to pay down some of his debts with government stimulus checks. But those payments stopped, inflation started and he was forced to lean a lot more on credit to get by.

LAUDENSLAGER: Most of my credit card use has been everyday expenses, things like groceries. And those little expenses add up quite a bit as prices across the board have increased.

REZVANI: And it doesn't stop there. Sharp interest rate hikes over the last year compounded his financial troubles, making his credit card debt more expensive.

LAUDENSLAGER: And it just feels like an impossible hole to climb out of.

REZVANI: It's a hole many people are stuck in at a time when the economy appears to be teetering. Nearly half of Americans say their savings have dwindled over the last year. To keep up with expenses, some are dipping into savings or retirement accounts, while others have been leaning on credit, says Charlie Wise of the consumer credit agency TransUnion.

CHARLIE WISE: We've seen over the past year, looking at credit cards, the average balance per consumer has increased fairly materially - about a $700 increase.

REZVANI: As credit cards continue to grow more expensive, Wise says more Americans are turning to a market that had fallen fairly quiet in recent years.

WISE: We saw record demand for personal loans during 2022, the highest that we've seen, certainly over the past decade and perhaps longer.

REZVANI: They're offered by the major banks, smaller credit unions and newer online lenders that experts say aren't always carefully regulated. The rates for those loans have gone up in the last year, as well, but they're often better than credit cards that are charging, in extreme cases, up to 36% in interest. It's a route Evan Laudenslager recently decided to take after nearly maxing out both his credit cards and watching his credit score slide.

LAUDENSLAGER: I did eventually find a loan that had a lower interest rate than my highest interest rate card, which helped justify it to me, helped make me feel like that might be worth it.

REZVANI: But he knows the road ahead is still uncertain.

LAUDENSLAGER: And now I have these big monthly payments, which I'm budgeting for. But it doesn't leave me any room for an emergency. All it would take is something unexpected for me to have to put that on my credit card again, and then I'm right where I started.

REZVANI: Back in the hole.

Arezou Rezvani, NPR News, Los Angeles. Transcript provided by NPR, Copyright NPR.

Arezou Rezvani is a senior editor for NPR's Morning Edition and founding editor of Up First, NPR's daily news podcast.