Nov 15, 2022 - Economy

Credit card balances see biggest spike in more than 20 years

Illustration of a credit card wearing a sweatband and dripping sweat.

Illustration: Victoria Ellis/Axios

Credit card balances in the third quarter jumped 15% over the same period last year — the biggest annual increase in more than two decades, New York Fed researchers reported today.

Why it matters: The spike reflects feverish rebound spending during a period of decades-high inflation, as well as added pressure on younger borrowers and borrowers with lower income.

The big picture: The upswing points to yet another dataset reverting to pre-pandemic patterns.

  • Amid a still strong labor market with government assistance programs now largely gone, "it's clear" that debt trends are shifting back to previous rates, New York Fed researchers said.

By the numbers: Credit card balances grew $38 billion from the second quarter, making up 11% of the overall increase in household debt ($351 billion).

  • Credit card holders between ages 30 and 59 have balances approaching fourth quarter 2019 levels, according to the report.
  • Borrowers under the age of 30 have balances now that are above where they were pre-pandemic.
  • Borrowers in the lowest income households have seen their balances surpass pre-pandemic levels as well.
  • Meanwhile, delinquency rates, which have remained very low, are starting to climb among households with lower income.

Be smart: Credit cards are the most prevalent type of debt in the U.S. — and credit card balances represent a mix of past debt and new consumption.

  • New York Fed researchers note that they couldn't distinguish between borrowers who pay in full each month from those who roll over their balances.

Two things to watch: The upcoming holiday season may boost balances even more this quarter.

  • And the status of the White House's student loan forgiveness plan, which has been tied up in the courts.
  • If it goes through, the researchers expect student loan delinquencies to be lower than they were pre-pandemic. If payments resume, younger borrowers may see greater credit pressures than older borrowers.

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