US credit card balances climbed by $22 billion in the third quarter to a record $1.29 trillion, according to the New York Fed. Total household debt also hit a record $19.1 trillion. Researchers tied the growth to financial hardship and to rising distress on newer accounts.
Americans now owe a record $1.29 trillion on their credit cards. Balances climbed by $22 billion in the third quarter, according to the Federal Reserve Bank of New York's latest household debt report, released Tuesday. They are up 4.2% from a year earlier.
Total household debt, which includes mortgages, auto loans and student loans, expanded by $334 billion for the July-to-September period to a record $19.1 trillion. New York Fed researchers said on a press call Tuesday: "This does reflect financial hardship out there."
Lower-income borrowers show more distress
The average credit card balance per consumer stands at $6,678, up 2.4% year over year, a separate TransUnion report found. The number of people with credit cards rose 2% to 178 million from 174.8 million.
Over time, an increasing share of new credit cards has gone to borrowers with lower incomes and credit scores. Those accounts are now showing higher levels of distress, the New York Fed researchers said in a blog post. Credit card issuers loosened their lending standards during the Covid pandemic, and delinquency rates rose in the years that followed, the researchers said on the press call.
Inflation and borrowing costs squeeze households
The New York Fed pointed to macroeconomic headwinds, namely high inflation and rising borrowing costs, which it said have squeezed consumers, with inflation outpacing wage growth for low-income brackets.
Consumers often turn to cards in part because they are more accessible than other loans, even though the average interest rate on a new credit card offer is about 24%, according to LendingTree data. Meanwhile, the Bureau of Labor Statistics also reported Tuesday that costs for goods and services rose more than expected in October.
Money Management International analyst Ted Rossman said that even though the growth rate is now slowing, a lot of damage has been done from a household finance standpoint.
Source: CNBC
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