When pandemic assistance funds were first issued, a lot of people thought it was great to have the extra money. Unfortunately, there’s no such thing as free money. Now that those extra funds have been spent, and many people are making less or are unemployed, consumers are turning to savings and credit to pay for essentials. For those consumers that managed to save their stimulus funds, they’re finding the need to tap into those savings in order to keep up with inflation. Now many consumers have exhausted their cash reserves and turning to easy credit as the answer. This lead to consumer credit usage that escalated by $38 billion in April, bringing credit card debit to record levels.

Even though overall wages have risen roughly 6% over the past year according to Labor Department data, the increase is still not enough to keep up with an even higher inflation running at over 9.1%, the highest we’ve seen in America in 40 years. As households start to experience shortfalls, many resort to credit to meet their month-to-month expenses paying for things like bills, gasoline, and food.

Auto loans and credit card debt have seen the largest usage increases as tracked by the Federal Reserve over the past few months.

Mortgage debt has also risen, but mostly at the upper end of the credit score scale. Credit scores on newly originated mortgages remain relatively high, reflecting continuing high lending standards by lenders. The median credit score of newly originated mortgages was 776 during the first quarter of 2022. Analysts also believe that median credit scores may possibly begin to fall as consumers exhaust their cash savings and tap credit cards.

Image by Jaleigh Morris