A recent survey from Bankrate made headlines recently with some startling new information about the financial condition of the average American. According to the study, a record number of people now have more credit card debt than they have emergency savings. In fact, over a third of all respondents (36%) reported their total credit card debt had grown larger than their total emergency savings. In 2021, that number was just 22% and in 2020 it was 28%. There are several things I took away from this single statistic.

First, while inflation has caused the price of things to go up faster than incomes have, people are not reducing how much they buy. They are simply using credit cards to bridge the gap between what they now spend and what they used to. This is of course a dangerous strategy, because about the only thing that has gone up faster than the price of consumable goods, is the interest rates you pay on your debt. According to the Federal Reserve of St. Louis, the average credit card interest rate is now over 20%. Compared to under 15% just a year ago. That means not only are you paying more now for the item, but you are paying more later as well, in the form of higher interest payments.

Second, it tells me we learned the wrong lesson from the Covid, and the subsequent emergency relief we all received. Unfortunately, the Pandemic did not teach us that unforeseen emergencies can happen at any time, and therefore we must always be prepared for financial challenges in the future. Instead, we learned that if things get bad enough, we can expect checks from Washington to appear in the mailbox to bail us out. Perhaps that is why we appear more willing than ever to forego putting a safety net underneath ourselves. Too many now believe the government will be there to catch us if we fall. With a potential federal debt crisis looming and a Republican house seemingly determined to cut back on federal spending, I’m not sure looking to D.C. for your salvation is a very wise strategy.

Lastly, this study is evidence to me that it will take very little bad economic news to push us into a significant recession. With this many people basically living month-to-month, how quickly will the dominoes begin to fall if unemployment rises by even a couple of percentage points? Think about it. Close to twice as many people have effectively no emergency fund than did a year ago. If inflation continues, and there is no reason to believe it will not, by year’s end we might have as much as half of our population with more credit card debt than emergency savings.

As someone who doesn’t like to point out problems without also providing solutions, here are my suggestions to those of you who are struggling with growing credit card debt.

First and foremost, stop the bleeding by cutting your plastic up and spending less than you make. This may mean eliminating things from your budget you really want or need. I’m not pretending it will be easy, but it will beneficial in the long run.

Second, you must develop a strategy for paying off the debt you already have. I personally suggest you use all emergency fund dollars you have above $1,000 to pay back as much of your credit card debt as possible. In addition, I suggest you sell things of value including, vehicles, jewelry, electronics, and anything else to eliminate this debt. As financial expert Dave Ramsey often jokes, sell so much the kids become worried they might be next.

Finally, identify ways in which you can increase your income. This can be adding another part-time job, or upgrading the full-time one you have. Stop yourself from even acknowledging the larger paycheck you are receiving and apply every bit of it toward getting your debt under control.

By doing these things, you can dig yourself out of the hole you find yourself in. It will take a lot of time, and even more discipline, but as you start to see your financial condition improve you will discover hope. Keep at it, and ultimately when the mess is cleaned up you will find something even better than hope. You will find peace.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)