New York, NY – Americans are turning to credit cards to cover everyday expenses, with debt reaching a new high at the end of December, according to a report from the New York Federal Reserve published on Tuesday. In the final quarter of 2023, total credit card debt surged to $1.13 trillion, an increase of $50 billion, or 4.6% from the previous quarter, marking the highest level on record in Fed data dating back to 2003 and the ninth consecutive annual increase.
The report also revealed an increase in borrowers struggling with credit card, student, and auto loan payments. As of December, about 3.1% of outstanding debt was in some stage of delinquency, signaling increased financial stress, especially among younger and lower-income households, according to Wilbert van der Klaauw, economic research advisor at the New York Fed.
Credit card delinquencies continued to rise from their pandemic-era lows in the fourth quarter, with individuals between the ages of 30 and 39 experiencing the most significant increase. New York Fed researchers expressed concern over the rise in delinquencies among younger Americans, attributing the increase to the resumption of student loan payments and potential overextension during the pandemic.
The average credit card annual percentage rate (APR) reached a new record of 20.72%, the highest since 1985. This, combined with the overall increase in credit card debt, raised concerns about the financial well-being of American households. With the average American owing $5,000 in credit card debt, the high APR levels could result in significantly increased interest payments over the long term.
The rise in credit card usage contributed to pushing total household debt to a staggering $17.5 trillion at the end of December, with auto loan balances, student loan debt, and mortgage balances all contributing to the uptick.
The increase in balances comes amid the Federal Reserve’s aggressive interest rate-hike campaign aimed at curbing inflation and cooling the economy. While inflation has cooled in recent months, it remains up 3.4% compared to the previous year, creating financial pressures for many U.S. households, especially low-income Americans.
With the continued rise in debt and interest rates, the financial strain on American households is expected to persist, leading to further challenges in managing everyday expenses.