Caleb Silver, editor-in-chief of Investopedia, joined Cheddar News to discuss the rising credit card debt that Americans hold as high-interest rates and continued inflation affect households. 

Caleb Silver, editor-in-chief of Investopedia, joined Cheddar News to discuss the rising credit card debt that Americans hold as high-interest rates and continued inflation affect households.&nbsp;

Closing Bell

Stretching Your Dollar: Credit Card Debt Surpasses Excess Savings

Inflation and a broad economic downturn have eroded American savings that were built up during the pandemic, leading people to put more purchases on their credit cards, which has created a dangerous cycle with us credit card debt actually surpassing excess savings for the first time in three years. And economists worry that it could spell a recession in the coming months. Joined now by Caleb Silver editor in chief at Invested Caleb. It's good to see you. Good to see you. So obviously a lot of Americans under financial pressure now perhaps concerned about losing their job just trying to get by with basic expenses rising and the cost of essentials still high. What jumps out to you about this debt versus savings imbalance? Yeah. Well, we're talking about excess savings here. So think of that as surplus savings, there's the personal savings rate. That's what Americans are normally able to put away every month, that excess savings and a lot of it was built during the pandemic when we were getting stimulus checks from the government. A lot of that is now eroding away and that's because we're having rising interest rates, record credit card levels of debt and that now makes revolving credit card debt revolving debt in general higher than that excess savings rate. Not a great sign, especially with this very persistent inflation and Americans getting a little bit more stretched as potentially as the economy slows down here. Right? So I'm reading here, credit card balance is up almost 20% just from a year ago when inflation had been an issue even at that point for several months. Is there concern that we could be seeing a debt bubble? And what might that potentially mean? Yeah, a debt bubble is not what the doctor ordered here at all. And what it means is that because of these higher interest rates, that means credit card APRs in particular are much higher. They're between somewhere between 22 24%. You just talked about the mortgage rate still north of 6% auto loans again, north of 6%. So all of these are driving that consumer credit much higher and when consumers start to feel tight, especially if the economy starts to slow or we get more laughs, they're going to stop spending. And as you know, consumer spending 60% 70% of us GDP. So that could really accelerate a slowdown and a potential recession if consumers get a little bit more strapped in terms of their expenses. Now, the good news here is that we still have a very relatively low level of defaults, a relatively low but climbing level of foreclosures, those are on the rise but not like they were in 2008 and a very low auto loan delinquency rate, although that is rising as well. So we've got to keep our eyes on all of those metrics right now. But the general point is the savings that a lot of Americans had built up, that's basically gone as we're spending more to finance the purchases we need to make. Ok. So I think we have a full screen here to talk about those foreclosures and even auto loan delinquencies Caleb that we can show here when we get to our next point. But knowing all of this, because you're able to connect the dots between main street and Wall Street, what does this potentially mean for stocks for anyone who might be wondering, should I pull some money out of the stock market if I am going to need more money to get by? Yeah. Well, that's one of the first things that goes, Kristen is when people feel a little bit tighter in terms of finances, they stop saving as much as they used to or they stop saving altogether and they definitely stop investing. So we've definitely, we've seen this in the past year or so as inflation was rising, the amount of money that people were putting away, whether it was their 401 Ks or their personal Iras or their own brokerage account that dwindles significantly. And you see that definitely throughout the income strata, wealthier households are able to actually do a little bit of both. But they're also the first to pull in terms of investing dollars. So we're going to probably see that take place in the market in terms of investors starting to pull back and invest less of available cash. We know a lot of investors have been going to cash. Does that mean they're going to continue to put money in the bank now that there's 4% returns and cds and other products. So it's not a good sign for the stock market, not a great sign for the retail sector in particular. And what's odd, Kristen and I know you've noted this is that the luxury part of the retail sector is doing quite well now, but there are signs of cracking in the middle to lower ranges there. So how should consumers and investors Caleb again because you have this unique perspective of Main Street and Wall Street prepare for the rest of the year? What might be in store? Well, maybe the interest rates are going to kind of stay around this level. We're going to get another rate hike meeting in the beginning of May, maybe the fed raises another quarter point. That could be it. But you're still going to have these have these persistently high levels of interest rates going through into next year. So you have to think about your high interest debt if you have high interest credit card debt, you want to consolidate that maybe take a loan to pay off some of those higher debts, but make sure you're paying back that loan and also keep an eye on, on just the discretionary purchases. We were doing a of spending a lot of revenge travel spending in particular last year that may dwindle down as well. So you could get this broad slowdown in the luxury and then sort of the discretionary spend and that could bleed all the way down into the basics if we get into a recession right now. But as a consumer, you definitely want to watch what you're paying every single month. And if you have that high interest debt over 20% consolidate it down, move everything to a much lower interest rate if you can. All right, Caleb Silver editor in chief at Invested Caleb. Thank you for the breakdown.