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Optimistic view: inflation has risen by about 8 percentage points over the last two years, but average credit card interest rates have climbed only about 4 perc
by wongarsu 4y ago
Optimistic view: inflation has risen by about 8 percentage points over the last two years, but average credit card interest rates have climbed only about 4 percentage points. So relative to inflation borrowing money got cheaper, leading to a rise in debt.
This view is likely overly optimistic.
- desertrider12 4y agoBut the goods being bought with the credit cards went up 8%. Consider before: Bob bought thing X for $100 before and then paid Y% interest on that debt. Now he buys it for $108 and pays (Y+4)% interest. It’s more expensive all around, even if his wages went up by the same 8%.
- wongarsu 4y agoSure, but when he as to pay (Y+4)% interest in a year, the money he uses is only 1/1.08=92.5% as valuable as it would be today because today that money buys 8% more than in a year. Thus his effective interest payment is lower (assuming inflation continues, and for simpler numbers pretending like interest payments are yearly and not monthly)