In a report released on Tuesday, August 8, the Federal Reserve Bank of New York stated that U.S. credit card debt surged by $45 billion in the second quarter of the year, a rise of over 4%, pushing the total to $1.03 trillion. This is the highest amount since the Fed started recording this data in 2003.
Rising Delinquencies:
With the uptick in credit card usage, delinquency rates have followed suit. The Fed reported that the share of credit card debt that was delinquent by 30 days or more rose from 6.5% the previous quarter to 7.2% in Q2, marking the highest level since Q1 of 2012. The overall debt delinquency rate edged up slightly from 3% to 3.18%.
The fluctuation in credit card debt was the most significant change in U.S. household debt during the second quarter. Total household debt, which includes credit card debt, mortgages, auto loans, and student loans, saw a modest rise of approximately $160 billion, setting a new record at $17.06 trillion.
Consumer Pressure on the Rise:
Elizabeth Renter, a data analyst for the personal finance website NerdWallet, mentioned that household budgets benefited from excess savings and pandemic-related debt relief policies over the past three years. However, the advantages from these policies are coming to an end. Indications are growing that consumers are feeling the strain from rising prices and dwindling savings compared to a few years ago, as credit card delinquency rates continue on an upward trajectory.
The Federal Reserve Bank of New York noted that the jump in U.S. credit card debt during Q2 seems to have returned to pre-pandemic levels. The increase in credit card balances is seen as a reflection of both inflationary pressures and heightened consumer spending.
Moreover, the Fed pointed out a slowdown in the demand for newly issued credit cards. Concurrently, banks are indicating a tightening in lending standards, including criteria for credit card issuance.
Other Debt Categories Remain Stable:
Compared to credit card debt, shifts in other types of household debt were relatively minor. Newly issued mortgage loans saw a rise, amounting to $393 billion, although the total mortgage debt slightly decreased to just over $12 trillion. Auto loans increased by $20 billion, reaching $1.58 trillion, while student loan debt declined to $1.57 trillion.
