Credit-card debt hits $1 trillion — that milestone comes at a very tricky time

By Andrew Keshner

Overall household debts climbed to $17.06 trillion, according to New York Fed data released this week

Credit-card debt surpassed the $1 trillion mark during the second quarter, a milestone pointing at consumers' continuing willingness -- or need -- to resort to credit cards in order to meet rising prices.

Americans' collective credit-card bill rose to $1.03 trillion from $986 billion in the first quarter, according to the household debt report released Tuesday by the Federal Reserve Bank of New York.

Overall, Americans are taking on more debt and largely paying their bills on time, but cracks appear to be showing.

Household debt climbed to $17.06 trillion, up just 0.1% from the previous quarter. This figure counts debts including mortgages, credit-card bills, car loans and student loans. Credit-card debt increased at the sharpest rate of all debt categories, researchers noted.

Meanwhile, delinquency rates pushed higher. The share of credit-card debt that was at least 30 days past due increased to 7.2%, up from 6.5% in the first quarter. That's the highest level since the first quarter of 2012, New York Fed data shows.

For car loans, the share of auto loans past due by at least 30 days climbed to 7.2% in the second quarter from 6.8% during the prior quarter. That's the highest since the first quarter of 2018, data shows.

"Credit-card balances saw brisk growth in the second quarter. And while delinquency rates have edged up, they appear to have normalized to pre-pandemic levels," Joelle Scally, regional economic principal at the New York Fed's Household and Public Policy Research Division, said in a statement.

There are signs of "some stabilization" on the amount of past-due credit-card bills, researchers said, but the numbers still indicate that consumers are getting saddled with more debt just as debt loads are expected to increase in the fall.

Starting in October, federal student-loan payments will resume. The Biden administration says it will hold off on some of the harshest consequences for non-payment through September 2024, such as putting unpaid loans in default or reporting delinquencies to credit-reporting bureaus.

Consumers paying down their federal student loans will have a combined $9 billion less to spend each month, and $100 billion less during the year, according to one estimate from Torsten Sløk, chief economist and partner at Apollo Global Management.

One factor contributing to rising credit-card debts is the increase in new accounts. There are 70 million more credit-card accounts open now compared to 2019, New York Fed researchers noted.

Consumers are still adding accounts, even as lenders tighten their standards and reject more applications for new credit cards and increases to existing card limits, particularly for people with lower credit scores. During the second quarter, the number of credit-card accounts climbed to 578.3 million, an addition of nearly 5.5 million new accounts.

Americans are piling on the debt while interest rates rise, which in turn push a credit card's annual percentage rates higher. That costs people if they are carrying a balance month-to-month and interest accrues. It's easy to find APRs at 20% and above these days.

A day ahead of the latest numbers on household debt, a separate survey showed more people carrying a credit-card balance.

Nearly half, 47%, of surveyed card holders said they were carrying a monthly balance, according to Bankrate, a personal-finance site. That's up from 46% in December 2022, and higher than the 39% who said they were carrying a balance in December 2021.

People carrying balances have been doing it for longer, the survey said. Six in 10 people who can't completely pay off a bill said they've been carrying at least some balance for over a year. One half of people carrying a balance in September 2021 said they had been holding onto it for at least a year.

Can credit-card balances ever get back below $1 trillion? It's doubtful, said Ted Rossman, senior industry analyst at Bankrate.

In the economy's big picture, larger credit-card debts might not be a bad thing, said Rossman. Cards enable consumer spending and may reflect consumer preference for cards -- with their points and rewards -- over cash, he said. The growth of credit cards also reflects a strong labor market where people have the jobs to pay down their card.

But rising debts are a more worrying story for the people who have cards they cannot completely pay off. "If you are paying 20% [interest] month after month, that becomes a very persistent debt cycle," Rossman said.

-Andrew Keshner

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08-12-23 1317ET

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