Americans have record-high credit card debts totalling $1.05 trillion amid historic inflation

Record high credit card balances hit Americans as inflation and interest rates rise.

Americans started 2024 on a hopeful note, but it seems a chunk of spending landed on credit cards. The average balance per cardholder hit a record high, reaching $6,360, contributing to a total credit card balance of $1.05 trillion in the fourth quarter.

SAN ANSELMO, CALIFORNIA - FEBRUARY 07: In this photo illustration, Visa credit cards are displayed on February 07, 2024 in San Anselmo, California. According to a report by the Federal Reserve Bank of New York, credit card debt in the United States has reached $1.13 trillion. (Photo Illustration by Justin Sullivan/Getty Images) (Photo by JUSTIN SULLIVAN / GETTY IMAGES NORTH AMERICA / Getty Images via AFP)(Getty Images via AFP)

Causes of the surge in the use of credit cards:

Economic pressures from historic inflation and 11 Federal Reserve rate hikes led many to rely on credit cards to make ends meet, says Michele Raneri from TransUnion. Higher interest rates and elevated living costs worsened the situation.

Generational struggle:

Gen Z and millennials are bearing the brunt. About 10% of those aged 18 to 29 and 8% of those aged 30 to 39 are 90 days past due on their credit cards. Subprime borrowers, with less favourable interest rates, saw balances grow by 32% to $105 billion.

Rising delinquencies:

Serious-level delinquencies are at their highest since the aftermath of the 2008 financial crisis. This includes both normal credit cards (2.59% delinquency rate) and private label credit cards (1.79% delinquency rate).

Economic impact:

The surge in credit card usage contrasts with a dip in credit originations, showing lenders' cautiousness amidst increasing delinquencies. However, millennials accounted for 29.6% of all new credit card originations.

Backdrop and trends:

Over the past years, there has been a shift towards credit card reliance, especially post-pandemic. While stimulus payments temporarily eased the burden, reliance on credit cards surged afterwards leading to an increase in cardholders carrying balances month to month.

Looking ahead:

The potential for Federal Reserve interest rate cuts later in the year could provide relief. Lower interest rates might make refinancing an attractive option, allowing consolidation of high-cost debt into lower-interest products.

Key takeaway:

The road ahead is uncertain, but understanding the causes and trends can help individuals navigate the storm of credit card debt. Awareness, budgeting, and seeking financial advice are crucial steps towards financial stability.