It's getting more and more expensive to use your credit card

• Americans are opening credit card accounts at record pace, but they're in for a rude awakening.
• The Fed's fight against inflation is expected to lift credit card rates to record highs.

It's a bad time to rack up a credit card balance. That's not stopping Americans from opening accounts at a blistering pace — and all this activity threatens to erase the financial progress many households made during the pandemic.

Americans' finances generally fared well throughout the coronavirus recession. Household balance sheets quickly recovered early in the crisis thanks to generous government stimulus and extraordinarily fast job creation. By comparison, it took about a decade for households to stage the same rebound after the financial crisis.

That swift recovery could soon have consumers overextending themselves. Americans have opened a record 11.5 million credit card accounts in the first two months of 2022, according to data from credit-reporting firm Equifax. Credit limits on those new cards total $55.5 billion, up nearly 60% from the same period last year. Retail sales data has already shown Americans spending more than ever through April, and Equifax's report suggests the spending spree has room to run.

The timing, however, couldn't be worse. The Federal Reserve is squarely in inflation-fighting mode, with policymakers expected to back double-sized rate hikes in June and July. Those increases lift borrowing costs throughout the economy, including through higher credit card rates.

The average card rate sits at 16.41%, according to Bankrate, but the Fed's battle against inflation could drive it to all-time highs. The Fed's rate-hike cycle could push that average to "well over" 18%, Ted Rossman, senior industry analyst at Bankrate, said in a note. That's above the April 2019 record of 17.87%.

At the consumer level, that represents a much higher bar to clear for Americans paying off high balances. The average credit card balance is $5,525, and it would take 195 months to pay that off by making the minimum payment with a 16.41% rate, Rossman said. It would also cost about $6,276 in interest. At an 18.91% rate, it would take that consumer six more months and another $1,040 in interest payments to pay off the balance, the analyst added.

The uptick in card rates wouldn't be very concerning if consumer debt was low, but the last several months have seen balances climb fast. Revolving consumer credit — which largely counts credit-card debt — leaped to $1.04 trillion from $1.02 trillion in March, according to Federal Reserve data. Americans aren't just spending big, they're racking up much larger card balances.

Higher rates, then, present a new threat to Americans already hammered by inflation. Prices continue to rise at a pace not seen since the 1980s as supply chain snags and Russia's invasion of Ukraine boost inflation pressures around the world. The price-growth problem has been enough to drag consumer sentiments to the bleakest levels in a decade. With rates on the rise, Americans' spending spree can quickly get much harder to pay off.

"With credit card debt, they can just keep pushing it along, so you get that higher rate onto larger and larger amounts. And it's very difficult to tell, in the short term, if an extension of credit card debt is because people are borrowing more or are paying back less," Susan Sterne, president and chief economist at Economic Analysis Associates, told Insider. "That is where you get into 'is this scary or not?'"

To be sure, revolving credit is still below the pre-pandemic high of about $1.09 trillion. Interest rates still sit at historically low levels, meaning Americans won't feel the crunch for at least a few months. And while paying down credit card balances will soon get harder, consumers' finances are generally in great shape. Pent-up savings and stimulus from earlier in the pandemic leave most households in a good position to cover their card payments.

Still, the unrelenting nature of Americans' demand raises concerns around the coming rate increases. Even though consumers feel positively dreadful about the state of the economy, they're still spending at an extraordinary clip. At the same time, the Fed is raising rates at the fastest pace in two decades. If spending doesn't cool off, surging credit balances could pull Americans out of the superlative economic recovery and into a new debt bind.