Americans hit a record high for consumer debt in February, continuing the trend of rising debt rates.
Key Details
- American consumer debt hit a record high of $4.82 trillion in February, according to a new report from the Federal Reserve.
- The debt number, primarily based on credit-card balances and auto loans, rose 5% over February 2022, compared with January’s 12.7% jump and December’s 8.4%, according to the report.
- Credit-card debt fell 13% in 2020, then jumped 9% in 2021 and almost 18% in 2022, marking a record growth rate.
- Total consumer credit has risen $34.8 billion since December to roughly $4.82 trillion, which comes to about a quarter of the total amount of Americans’ after-tax income, according to Forbes.
Why it’s news
The 2020 pandemic allowed many American consumers to save money and begin paying off credit-card debt, but shortly after it ended, supply-chain issues and rising interest rates caused prices of most items to soar, leaving Americans to rely once again on credit cards.
In February 2023, consumer credit hit a record high of $4.82 trillion, with the average American currently having $5,900 in credit-card debt, according to data firm Experian.
During the pandemic, consumers were able to save money and pay off their credit cards due to prices being extremely low and the large number of stimulus checks that were being spread to Americans.
Debt fell 13% in 2020, but the low prices did not stay for long. Following the pandemic, prices of nearly everything began to rise due to supply chain issues. Many factories were shut down to avoid spreading COVID-19, ultimately leading to product item shortages—causing prices to spike.
The effects of the shortages were felt for nearly two years, with prices remaining high. The inflation led many Americans to rely on credit cards again, causing debt to jump 9% in 2021 and nearly 18% in 2022.
Americans carried a balance on 53% of all active credit-card accounts in the second quarter of 2022, according to data from the American Bankers Association.
Despite debt reaching a record high, card companies continue to offer many perks and incentives to bring in new customers. Credit companies offer travel points, cash-back bonuses, and heavy discounts when new customers open a card.
Many businesses are collaborating with credit-card companies to offer branded cards with incentives, but the cards typically have large interest rates, which are only beneficial to the small number of people who pay their card balance in full each month, fueling debt growth.
Although credit-card debt continues to grow quickly, mortgages and student loans are rising more slowly, jumping 3.4% in February compared to 1.7% and 2.2% in December and January, respectively, according to Forbes.
