Americans’ credit card debt has now hit a record $1 trillion.
Credit card balances surged by $45 billion, from $986 billion in the first quarter of this year to a high of $1.03 trillion, according to the latest data released by the Federal Reserve on Aug. 8.
“Credit card balances saw brisk growth in the second quarter,” Joelle Scally, Regional Economic Principal within the Household and Public Policy Research Division at the New York Fed, said in the release. “And while delinquency rates have edged up, they appear to have normalized to pre-pandemic levels.”
Despite rosy reports that U.S. inflation is easing, the cost of living rising faster than incomes has forced millions of Americans to turn to debt to try and make ends meet, NerdWallet reports.
“Credit card debt is often thought to be the result of frivolous spending, but for many Americans, that’s just not true,” says Sara Rathner, a NerdWallet credit cards expert. “Consumers are feeling the squeeze of higher prices and interest rates, and paychecks just aren’t keeping up. That’s forcing many to make tough decisions, like going into debt to pay for necessities.”
According to the Fed report, total household debt in Q2 2023 rose from $16 billion to $17.06 trillion.
The record figures are coming at a time when interest rates have increased to a 22-year high.
“As interest rates feed through from the federal funds rate to interest rates on mortgages and credit cards, that affects everyday consumers,” Sofia Baig, an economist at decision intelligence company Morning Consult, told CNN. “So with elevated interest rates, paying that debt becomes more expensive, and with consumers continuing to take on more debt, this combination will put more pressure on some households who have those tighter budgets.”
The day the Fed published the record-breaking financial data, Bank of America analysis showed that more Americans are dipping into their 401(k) accounts because of financial distress.
“The data from our report tells two stories — one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals,” said Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America. “This year, more employees are understandably prioritizing short-term expenses over long-term saving.”
