During the second quarter, credit-card debt in the United States reached a significant milestone, surpassing the $1 trillion mark. This milestone serves as a clear indication of consumers’ ongoing willingness or necessity to rely on credit cards to meet the escalating costs of living.
According to the household debt report recently released by the Federal Reserve Bank of New York, the collective credit-card bill for Americans rose to $1.03 trillion from $986 billion in the first quarter. Although Americans are generally accumulating more debt and managing to make their payments on time, there are signs of potential trouble looming on the horizon.
Overall household debt increased marginally to $17.06 trillion, rising only 0.1% from the previous quarter. This total encompasses debts such as mortgages, credit-card bills, car loans, and student loans. Notably, credit-card debt experienced the most substantial growth rate among all categories of debt.
Concerningly, delinquency rates have also seen an increase. The proportion of credit-card debt that was at least 30 days past due rose to 7.2%, up from 6.5% in the first quarter. This is the highest level recorded since the first quarter of 2012, according to data from the New York Fed.
Similarly, for auto loans, the share of loans past due by at least 30 days climbed to 7.2% in the second quarter compared to 6.8% in the prior quarter. This is the highest delinquency rate observed since the first quarter of 2018, as stated by available data.
Credit Card Debt on the Rise
Credit-card balances experienced significant growth in the second quarter, according to Joelle Scally, regional economic principal at the New York Fed’s Household and Public Policy Research Division. While delinquency rates have slightly increased, they now appear to be returning to pre-pandemic levels.
Although there are signs of stabilization in past-due credit-card bills, researchers warn that the numbers still indicate that consumers are accumulating more debt. This is particularly concerning as debt loads are projected to increase in the coming months.
Starting in October, federal student-loan payments will resume after a temporary pause. However, the Biden administration has announced that it will delay the implementation of severe consequences for non-payment until September 2024. These consequences include putting unpaid loans in default or reporting delinquencies to credit-reporting bureaus.
Considering this, consumers who are repaying their federal student loans will have $9 billion less to spend each month and a staggering $100 billion less throughout the year, according to estimates by Torsten Sløk, chief economist and partner at Apollo Global Management.
Before the latest data on household debt was released, a separate survey revealed that an increasing number of people are carrying a credit-card balance. According to Bankrate, nearly half (47%) of surveyed cardholders reported carrying a monthly balance. This figure is higher than the previous year, with only 39% admitting to carrying a balance in December 2021.