At the end of 2022, Americans racked up credit-card debt at the fastest pace New York Federal Reserve researchers have ever seen, underscoring how many people are turning to cards to keep up with rising costs.
Credit-card balances grew by $61 billion during the fourth quarter, totaling $986 billion as Americans shopped for the holidays amid high inflation in many parts of their life, according to quarterly household debt numbers from the Federal Reserve Bank of New York.
The $986 billion in aggregate credit-card debt now surpasses the pre-pandemic high of $927 billion, researchers said. The quarter-to-quarter increase is the largest jump researchers have seen for credit cards since the New York Fed started tracking the data more than two decades ago.
Including debts like mortgages, credit cards, car loans and student loans, Americans added $394 billion to their debts during the fourth quarter. That brings their total balance to $16.9 trillion, a $2.75 trillion increase since just before the pandemic.
“Credit-card balances grew by $61 billion during the fourth quarter, totaling $986 billion.”
Even as debt loads grow heavier, most people are keeping up with their bills — or, at least, not falling too far behind.
The share of delinquent debt continued to grow during the fourth quarter for just about all categories, credit cards included. But that’s coming off of two years of historically low delinquency levels.
For example, the share of credit-card debt three months behind on payments increased to 4% from 3.2% one year earlier. Before the pandemic, that number was 5.3%, researchers noted.
Looking closer at the delinquency demographics, researchers say borrowers in their 20s, 30s and 40s are starting to fall behind on their credit-card bills and car loans.
In fact, half of people say they are in a worse financial situation than a year ago, according to a recent Gallup poll.
During January, inflation rates cooled for a seventh straight month, but still came in hotter than estimates, according to the consumer price index. Inflation rates on wholesale prices were also higher than hoped, data released Thursday showed.
“Borrowers in their 20s, 30s and 40s are starting to fall behind on their credit-card bills and car loans, researchers say.”
That will fuel the debate about how high the Federal Reserve needs to increase rates. Rising benchmark interest rates may further cool inflation, but they also boost many people’s borrowing costs, including credit-card annual percentage rates or APRs.
The average APR on new credit cards is now 23.55%, an increase from 23.39% last month, according to LendingTree.com.
It’s difficult to calculate just how much of the rising debt loads are related to higher interest rates, researchers noted.
“Credit-card balances grew robustly in the fourth quarter, while mortgage and auto-loan balances grew at a more moderate pace, reflecting activity consistent with pre-pandemic levels,” Wilbert van der Klaauw, economic research advisor at the New York Fed, said in a statement.
“Although historically low unemployment has kept consumer’s financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” he added.
Student-loan balances stood at $1.6 trillion in the fourth quarter of 2022, up $21 billion from the third quarter, researchers said.
But hanging over this is the ongoing pause on student-loan payments and the pending Supreme Court fight over the Biden administration’s $10,000 loan forgiveness order. The Biden administration has said it will keep the pause in place no later than 60 days after June 30.
New York Fed researchers said they’d be watching to see what any resumed student-loan payments would mean for Americans’ debts and delinquencies.
The Supreme Court has scheduled Feb. 28 oral arguments on the challenges to Biden’s order.