America has hit a record high for credit-card debt, with the overall balance reaching nearly $1 trillion.
Key Details
- American credit-card debt reached $986 billion in the last quarter of 2022, breaking a record set in 2019 of $927 billion.
- The $61 billion increase from the prior quarter was the biggest seen in data going back to 1999, according to Bloomberg.
- Borrowers are also missing payments—a little more than 4% of credit-card debt has transitioned to serious delinquency, which means failing to pay for 90 days or more.
Why it’s news
Although prices of nearly everything have been high due to record-breaking inflation, many Americans have yet to dial back on spending. Instead, consumers have been relying on credit cards to pay, bringing credit card debt to a record high.
American credit-card balances reached $985 billion in the final quarter of 2022, passing the previous record of $927 billion set in 2019. The jump in debt was the largest seen in nearly 24 years, according to the New York Fed’s Household Debt and Credit Report.
The surge in debt makes a dramatic shift from 2020 when stimulus checks allowed consumers to begin paying off their credit-card payments. In early 2021, credit-card balances had dropped 17% from the pre-pandemic high, according to a report from Bankrate.com.
Americans have been plagued with inflation for many months, heavily driving up the prices of everyday items. The high prices have forced many Americans to rely on credit cards to pay for things, and the Federal Reserve’s rate hikes have pushed credit-card interest rates to nearly 20%, adding to the increased pressure of debt.
Overall, credit-card balances extended by $130 billion from December 2021 to December 2022—the largest annual growth on record. The Fed is expected to continue hiking interest rates, and many analysts are assuming that debt will continue to skyrocket, causing credit-card borrowing to hit a 40-year high this year.
“It’s triple trouble for credit-card borrowers. Balances are up, rates are up, and more people are carrying credit-card debt,” says senior Bankrate analyst Ted Rossman, adding that 46% of credit-card holders are carrying debt, up from 39% a year ago.
Debt rising
Overall 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.
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.
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.