The latest data on consumer credit reaffirms what many have believed all along: America has a credit card addiction.

According to the Fed, total consumer credit increased by $10.4 billion in July. Non-revolving credit, which includes college tuition and auto loans, rose by $773 million.

Americans have now amassed a staggering $4.98 trillion in consumer debt, according to the Fed’s data. About a quarter of that—$1.27 trillion—is revolving credit, such as credit cards, personal lines of credit, and home equity lines of credit.

Taking out a loan to pay for school or a car is often a prudent decision, but revolving credit is where things get dangerous.

Credit card usage has exploded over the past year, with balances exceeding $1 trillion for the first time. That’s not a flattering record, given persistent inflation and rising interest rates.

With pandemic savings depleted and wages barely rising in real terms, cash-strapped Americans rely more on their credit cards than ever. Unfortunately, many don’t realize how badly credit card companies are charging them.

The hidden cost of credit cards

Credit cards provide numerous benefits. They’re convenient, have all kinds of perks, and offer a level of fraud protection that debit cards and cash can’t match. And let's face it: it’s extremely difficult, if not impossible, to go through modern life without a credit card.

But those benefits only apply to those who pay off their balances in full each month. For everyone else, credit cards have extremely high carrying costs.

The average credit card charges 28% interest on purchases, according to Forbes. Credit cards are highly sensitive to short-term rates, which the Fed influences. As the Fed raises interest rates, credit cards have become more expensive.

According to Bankrate, the national average credit card rate has increased by more than 22% since the Fed began raising rates in early 2022.

Consumers who need money quickly make cash advances on their credit cards, often not realizing that interest rates on cash advances are usually much higher than the card’s regular rate.

This information is usually tucked away in the fine print, but how many people actually read that? One study suggests it’s close to zero.

Beyond interest rates, credit cards have hidden fees that drain people of their hard-earned money. Transaction fees for international purchases, balance transfer fees, late fees, and annual membership fees all add up over time.

Consumer finances are the real issue

Ballooning credit card balances wouldn’t be a massive issue if consumers had their finances under control. In today’s America, between 55-63% of people likely live paycheck to paycheck, according to research from Bankrate.

This number jumps to around 75% for Americans who earn less than $50,000.

According to a survey by the U.S. Census Bureau, almost 40% of adults say they’re struggling to make ends meet—up from an already high 34.4% in 2022 and 26.7% in 2021.

The experience of average Americans seems to contradict the slew of economic data showing the economy remains strong. After all, employers keep hiring, consumers keep spending, and the real estate market doesn’t have enough homes to meet demand.

But a glimpse into Americans’ credit card woes suggests this all could be a façade.