Credit card debt in US rises 46% as financial stress builds on households

Washington, DC, US - The financial stress on households rose due to inflation and interest rates in the US, bringing the amount of credit card debt US consumers held at the end of 2023 to a record high.

Household debt in the US climbed 1.2% in the fourth quarter of 2023 compared to the previous quarter, reaching Us$17.5tn, according to the Household Debt and Credit Report from the Federal Reserve Bank of New York.

Despite housing loans taking up the highest share in household debt, credit card debt stole the spotlight, as it rose approximately 5% (Us$50mn) compared to the previous quarter, and around 15% (Us$143mn) year-on-year, reaching a record high of Us$1.1tn in the fourth quarter of 2023.

The default rate on credit cards and auto financing is still rising above pre-pandemic levels, signalling increased financial stress, especially among young and low-income households, said Wilbert van der Klaauw, economic research adviser at the Fed of New York.

“Consumer spending has been strong, thanks in large part to a robust job market and all of the pent-up demand coming out of the pandemic,” Ted Rossman, senior industry analyst at USbased financial service firm Bankrate, told Anadolu.

Rossman said credit card debt has increased over 46% since the beginning of 2021, and that the high interest rates and inflation are “the biggest factors that have pushed credit card balances higher over the past few years.”

It matters whether credit card holders pay their debt in full each month, he said, noting that for about half of cardholders who do so, interest rates do not pose significance, while the other half “can easily become trapped in an expensive debt cycle.”

“About 6 in 10 people with credit card debt have been in credit card debt for at least a year. There's a substantial cumulative effect to paying 20%+ interest rates over the long term.”

Rossman said there has been an extraordinarily high increase in credit card debt in the last two years and that this is not sustainable, adding that while the use of cash continues to decline, he expects credit card balances to increase over time due to “consumer spending, economic activity,” and population growth.

“At the end of the day, it comes down to the household level,” he added.

“The combination of stubborn inflation, rising inflation and other economic headwinds have shrunk many Americans’ already-tiny financial margin for error down to zero, forcing many to rely on credit cards to have them make ends meet,” said Matt Schulz, chief credit analyst at Us-based loaner Lendingtree.

The combination of stubborn inflation and other economic headwinds have shrunk many Americans’ already-tiny financial margin for error down to zero