Americans are no strangers to swiping their credit cards to cover everyday expenses, but recent data reveals that this reliance on plastic money has hit a new record high. According to a report from the New York Federal Reserve, total credit card debt skyrocketed to $1.13 trillion in the three-month period from October to December, marking a significant $50 billion surge from the previous quarter. This 4.6% increase in credit card debt is certainly no small change.
As of December, approximately 3.1% of outstanding debt was in some form of delinquency, a slight uptick from the previous quarter’s 3%. However, this figure is still lower than the average 4.7% delinquency rate observed before the onslaught of the COVID-19 pandemic. Wilbert van der Klaauw, the economic research advisor at the New York Fed, noted that both credit card and auto loan transitions into delinquency are surpassing pre-pandemic levels, indicating a concerning trend in consumer debt management.
Credit card delinquencies continued to climb from their pandemic-induced lows in the fourth quarter, with the flow of debt slipping into delinquency reaching an annualized rate of 8.5%. This is a notable increase from the 8.01% uptick in the third quarter and the 5.87% rate recorded just a year ago. The implications of this surge in credit card usage and debt are further exacerbated by the current sky-high interest rates.
The average annual percentage rate (APR) on credit cards soared to a staggering 20.72%, as reported by a Bankrate database spanning back to 1985. Such exorbitant interest rates could spell trouble for individuals carrying balances on their credit cards to offset rising costs. For instance, the average American holding $5,000 in credit card debt could find themselves ensnared in a vicious cycle of debt, with a projected repayment period of around 279 months and a whopping $8,124 in accrued interest if only making minimum payments.
The surge in credit card debt has contributed to an overall spike in total household debt, which now stands at a jaw-dropping $17.5 trillion, marking a $212 billion (1.2%) increase from the previous quarter. Notably, student loan debt rose by $2 billion, while mortgage balances surged by $112 billion to reach $12.25 trillion. The implications of this escalating debt burden on American households are significant and underscore the importance of prudent financial management in these uncertain times.