Americans are increasingly leaning on their credit cards to manage daily expenses, leading to a staggering high in credit card debt. As reported by the New York Federal Reserve, the end of September saw this debt reach a new peak of $1.08 trillion, up $48 billion or 4.6% from the previous quarter, marking the highest level since 2003 and the eighth consecutive year of growth.
This surge aligns with strong consumer spending and real GDP growth, as noted by Fed economist Donghoon Lee. However, alongside this rise is an increase in delinquencies. About 3% of outstanding debt is now in some stage of delinquency, a slight rise from the previous quarter, though still lower than the pre-COVID-19 pandemic average. The number of newly delinquent individuals, especially those aged 30 to 39, has exceeded pre-pandemic levels.
The Fed attributes this rise in delinquencies to a combination of factors: relaxed lending standards, overextension by lenders and borrowers, and financial hardships at home due to ongoing inflation and high interest rates. This situation is exacerbated by the current record-high average credit card annual percentage rate (APR) of 20.72%, the highest since 1985.
To illustrate the impact, a typical American with $5,000 in debt would require approximately 279 months and $8,124 in interest to clear it, considering the current APR levels and making only minimum payments. This escalating debt, now part of a total household debt of $17.29 trillion, comes amid the Federal Reserve’s aggressive interest rate hikes aimed at curbing inflation.
Despite recent cooling, inflation remains 3.7% higher than last year, significantly straining U.S. households, particularly those with lower incomes who are more vulnerable to price hikes in essentials like food and rent. This alarming trend underscores the growing financial challenges faced by many Americans in the current economic climate.
