US Credit Card Debt Total Reaches $1 Trillion

The Federal Reserve Bank of New York announced Thursday that US consumer credit card debt exceeded $1 trillion.

The ballooning total has coincided with an increase in interest rates due to recent Fed decisions. Consequently, household budgets eat away savings amassed during the pandemic. 

The record total sounds an alarm about the status of US borrowers. Meanwhile, this trend is raging amid a booming job market and a record-low unemployment rate.

How did US credit card debt grow to $1 trillion?

U.S. credit card debt jumps 18.5% and hits a record $930.6 billion https://t.co/P3ulyPbWse

— CNBC (@CNBC) February 3, 2023

The New York fed explained that the recent series of interest rate hikes by the Federal Reserve caused the jump in credit card rates.

Wilbert van der Klaauw, an economic research adviser at the New York fed, shared this statement regarding the recent trend:

“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.”

A senior analyst at Bankrate.com, Ted Rossman, said that rising consumer prices also contributed to record US credit card debt.

Many people have struggled to cover day-to-day expenses, so they use credit cards instead of cash.

“That becomes a very persistent cycle of debt, unfortunately,” said Rossman. Consequently, more people have been late on their credit card payments.

The delinquency rate in December 2022 was 2.5% of outstanding debt. In contrast, it was 4.7% by the end of 2019.

New York researchers worry about the rising delinquency rate despite a strong labor market. 

“This financial distress is real, and the delinquent marks will impact their access to credit for years to come,” stated a NY Fed blog.

During the pandemic, the Biden administration implemented a student loan pause to help struggling students.

Unfortunately, student loan payments will restart 60 days after June 30 unless President Joe Biden grants a new pause or decrees loan forgiveness.

Mike Loewengart, head of model portfolio construction at Morgan Stanley, shared his thoughts on US credit card debt with CNN.

He said resuming student debt payments will “put more pressure on the consumer and force people to make tough choices.”