U.S. Credit Card Debt Surges to $1.08 Trillion, Highest in Years

According to a recent report on household debt from the Federal Reserve Bank of New York, Americans are now grappling with a staggering $1.08 trillion in credit card debt. This marks a significant year-over-year increase of $154 billion, representing the most substantial surge since 1999.

Donghoon Lee, the economic research advisor at the New York Fed, attributed this surge in credit card balances to robust consumer spending and real GDP growth observed in the third quarter. However, this increase has also been accompanied by rising credit card delinquency rates across the board. Notably, millennials, individuals between the ages of 30 and 39, are facing heightened delinquency rates, likely due to their substantial student loan debt burdens.

With inflationary pressures affecting most individuals, particularly in areas such as food, fuel, and housing, a growing number of cardholders are finding themselves carrying debt from one month to the next or falling behind on payments. A separate report from the Consumer Financial Protection Bureau indicates that a greater portion of balances are now more than 180 days delinquent.

Persistent Debt Cycle:

In addition, almost one-tenth of credit card users find themselves caught in a cycle of “persistent debt,” where they incur more in interest and fees annually than they contribute toward the principal. This trend has become increasingly challenging to break, as noted by the consumer watchdog.

Ted Rossman, senior industry analyst at Bankrate, highlights the significance of this issue, stating, “Your credit card is probably your highest cost debt by a wide margin.”

Credit card rates have already been elevated, and recent hikes by the Federal Reserve, including four in 2023, have caused them to surge even further. Since most credit cards have variable rates directly tied to the Fed’s benchmark, the average annual percentage rate now exceeds 20%, reaching an all-time high.

U.S. credit card debt reaches $1.08 trillion: New York Fed

Despite the steep costs, consumers often resort to credit cards due to their accessibility compared to other types of loans. However, this choice often comes at the expense of long-term financial goals, diverting funds that could have been used for purposes such as education savings, home down payments, or retirement investments.

Until recently, many Americans had the safety net of government-provided stimulus funds, which left them with significant cash reserves. This surplus allowed some cardholders to manage their credit card balances effectively. However, the gradual expenditure of these savings, originally accumulated during the Covid-19 pandemic years, has left consumers with limited financial cushion.