July 13, 2024

Credit Card Debit Hits A Record High at $1 Trillion

The Federal Reserve Bank of St. Louis reported Friday that Americans’ credit card debt has reached a significant and concerning milestone of $1 trillion. The number comes as some credit card interest rates have hit their highest level in 40 years.

According to a recent study by WalletHub, the average interest rates for new credit card offers have risen to 22.39 percent, a substantial jump from 18.89 percent the previous year. Previous years held similar averages, with 17.06 percent in 2010. The research group attributes the increase to recent Federal Reserve hikes.

In early 2022, the Federal Reserve had interest rates close to zero. However, starting in March 2022, the Fed increased speeds 11 times. By late July, the rates had reached a 22-year peak at 5.5 percent. The report emphasized that these credit card trends serve as a reflection of the overall economic well-being and health of the larger economy.

“For example, 0% introductory APRs and initial rewards bonuses dried up during the Great Recession. And the decline in consumer credit quality during that period was a big reason why,” it said.

Credit card companies naturally tend to increase rates along with the Fed. One result is that debt deepens as Americans find their credit card balances harder to pay off and owe more for their delays. WalletHub estimates that the average household’s credit card debt has surpassed $10,000.

A recent Northwestern Mutual study found Americans with debt on average owe more than $21,000 outside of mortgages, with the top source of that debt being credit card debt.

The Q1 2023 Quarterly Credit Industry Insights Report from TransUnion, released in May, indicated that credit card holders are increasingly using that credit to pay for household essentials due to inflation.

The Federal Reserve Bank of New York published a report (pdf) recently, breaking down debt categories.

Federal student loan repayments, which had been paused due to the pandemic, are set to resume in October. Student loan debt delinquencies stood at less than 1 percent, down slightly from the previous quarter. They had fallen substantially due to the Fresh Start program, which made previously defaulted loan balances current.

In the first quarter of the year, there was a modest rise of $121 billion in mortgage balances, a $10 billion increase in auto loans, and a growth of $24 billion in total non-housing balances. 

While credit card balances usually decrease in the first quarter, they remained stable this year, deviating from the typical trend.

Despite increasing levels of debt, Americans’ perception of debt remains relatively consistent.

A recent NerdWallet survey found that a third of Americans have not told anyone how much they owe, and two in five say it is embarrassing to have credit card debt.

The survey also highlights a significant portion of individuals keeping their financial circumstances hidden from their partners and family members. Around 43 percent of respondents admitted to either withholding information or lying to their partners about their debt, and 49 percent felt it was acceptable to maintain undisclosed savings from their significant others. 

The survey found that 60 percent of Americans believed parents should share financial details with their adult children, and 74 percent of parents affirmed having done so. However, when it comes to parents with younger children, 54 percent tend to keep financial information from their parents.

“Money and communication don’t always go hand in hand,” said Melissa Lambarena, a credit card expert at NerdWallet.

Younger Americans were more likely to withhold information or lie about their financial standing. Specifically, 63 percent of Gen Z (ages 18 to 26), 58 percent of millennials (ages 27 to 42), 44 percent of Gen X (ages 43 to 58), and 19 percent of Baby Boomers (ages 59 to 77) admit to this behavior.

Generally, Gen Z holds lower credit card debt than other age groups, according to an Experian report, as they are holders of new accounts. According to other surveys, the most significant source of debt for this group tends to be student loan debts.

According to Northwestern Mutual’s 2023 Planning & Progress Study, individuals in debt allocate approximately 30 percent of their income to debt repayment. Despite this, many anticipate remaining in debt beyond the current year—nevertheless, 49 percent express intentions to clear their debts within the next five years.

Christian Mitchell, chief customer officer at Northwestern Mutual, stated, “More people feel like they’re moving in the right direction than those who do not, but there’s still a sizable universe of people carrying more debt than ever.”

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