Americans now owe $1.08 trillion credit cardsaccording to new report on household debt of the Federal Reserve Bank of New York.
Credit card balances rose by $154 billion year over year, the biggest increase since 1999, the New York Fed found.
“Credit card balances saw a big jump in the third quarter, consistent with strong consumer spending and real GDP growth,” said Donghoon Lee, economic research adviser at the New York Fed.
Credit card delinquency rates also rose overall, the New York Fed said, but mostly among millennialsor borrowers aged between 30 and 39, who suffer from high levels of student loan debt.
With most people feeling tense higher prices —especially for food, gas and housing—there are more cardholders carry debts from month to month or are late on payments, and a greater percentage of balances are more than 180 days delinquent, according to a separate report of the Consumer Financial Protection Office.
Almost a tenth of credit card users find themselves in “persistent debt” where they are charged more in interest and fees each year than they pay on the principal, a pattern that is increasingly difficult to break, said the consumer control body.
“It’s a big deal,” said Ted Rossman, senior industry analyst at Bankrate. “Your credit card is probably your highest cost debt by a wide margin.”
Credit card fees exceed 20%
Credit card rates were already high, but have recently risen along with the Federal Reserve’s chain of 11 rate hikesincluding four in 2023.
Since most credit cards have a variable rate, there is a direct connection to the Fed’s benchmark. As the federal funds rate rose, so did the prime rate, and credit card rates followed suit.
The average annual percentage is now more than 20%, also an all-time high.
Paying for food and drinks at a cafe is easy with credit cards.
Olga Rolenko | Moment | Getty Images
Why Credit Card Debt Keeps Rising
Despite the high cost, consumers often turn to credit cards, in part because they’re more accessible than other types of loans, according to Matt Schulz, chief credit analyst at LendingTree. But that comes at the expense of other long-term financial goals, he added.
“That’s money that’s not going toward a college fund or a down payment on a house or a Roth IRA,” he said.
Until recently, most Americans benefited from a few government-supplied safety nets, most notably the large injection of stimulus money, which left many households sitting on a cash hoard that allowed Some cardholders keep track of their credit card balances.
But that cash reserve has largely disappeared after consumers gradually spent their excess savings from the Covid-19 pandemic years.
Now, “consumers maintain and support their lifestyles through credit card debt,” said Howard Dvorkin, CPA and president of Debt.com.
“It’s been a struggle,” said Adriana Cubillo, 25, of Modesto, California. “My rent is going up, so even though all the bills are paid, sometimes I’m living paycheck to paycheck.”
However, consumer credit scores have remained highhelped by a strong labor market and lower inflation, along with the removal of certain medical collections data from consumer credit files, recent reports show.
What to do if you have credit card debt
If you have a balance, try calling your card issuer for a lower rate, consolidating, and paying off high-interest credit cards with lower interest. home loan or personal loan or switch to a no-interest balance transfer credit card, Schulz advised.
To optimize the benefits of their credit card, consumers should regularly compare credit card offers, pay off as much of their balance as possible as soon as possible and avoid paying their bill late, said Mike Townsend, spokesman for the American Bankers Association.
“Any credit card holder who is under financial stress should always contact their card issuer to inform them of their situation,” Townsend said. “They may be eligible for some relief or assistance depending on their individual circumstances.”
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