Credit card debt held by Americans has once again hit record high levels as interest rates continue to climb.
During the third quarter of this year, for the first time ever, credit card balances hit $1.08 trillion after increasing by $48 billion, marking the eighth quarter of consecutive year-over-year increases, according to the latest data released by the Federal Reserve Bank of New York.
“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.”
Total household debt rose by 1.3 percent to hit $17.29 trillion in Q3, according to the Fed.
“Unfortunately, it’s only going to go up from here,” Matt Schulz, chief credit analyst for LendingTree, said during an interview with CNN. “What’s driving it is inflation, higher interest rates and just generally how expensive life is in 2023.”
America’s growing reliance on credit cards could be a harbinger for more trouble with the U.S. economy, Fortune Magazine reported.
However, some analysts say that while balances are at a new high, Americans’ debt relative to their disposable income is still “nowhere near” the highs seen just prior to the 2008 financial crisis.
“Credit card debt doesn’t represent a huge part of consumer spending power. Put more simply, this isn’t 2007 again,” Stephane Renevier, senior global markets analyst at financial information platform Finimize, told Fortune.
“It suggests that trouble might be brewing under the surface,” he said. “Often, an increase in credit card debt is a sign that the economy is expanding—but if it happens when inflation is still squeezing consumers’ budgets, when the cost of servicing that debt is high, and when the economic outlook is uncertain at best, there’s probably a more troubling explanation: an increasing number of consumers are being forced to use credit cards to make ends meet.”
