- Americans have racked up nearly $1 trillion in credit card debt
- Delinquency rates are rising, particularly among young people
- Federal Reserve widely expected to skip another rate hike next week
Updated:
(NewsNation) — Credit cards are the most common type of debt in the U.S. and Americans are racking up quite the bill at this time of high inflation.
Over the past two years, the nation’s credit card debt has increased by almost $250 billion — a total that now stands at nearly $1 trillion.
For many, that borrowing is out of necessity. More than a third of Americans now use credit cards or loans to meet their spending needs, according to recent data from the Census Bureau.
Today, about 45% of people say they’re worse off financially compared to a year ago, a recent NewsNation/Decision Desk HQ poll found.
Delinquency rates up among young adults
More Americans are falling behind on their credit card payments, especially young people. Over the past year, the delinquency rate on credit cards — 90 days or more past due — for 18-29 year-olds increased from 5.1% to 8.3%, according to the Federal Reserve Bank of New York.
That’s nearly two times the average delinquency rate across all age groups, which rose to 4.6% this year.
Failing to pay off credit cards can be particularly damaging for young people because it hurts their credit scores and ability to borrow in the future.
Despite the recent uptick, today’s delinquency rates are still average compared to the last two decades. In the early 2000s, those rates hovered around 12% for young people before hitting 14% during the great recession, per New York Fed data.
As a group, middle-aged Americans have the most credit card debt outstanding. Those ages 40 to 59 hold a balance of $440 billion.
Credit card interest rates surge with Fed hikes
American consumers have been hit by a one-two punch — rising prices and higher interest rates. Since March 2022, the Federal Reserve has raised its benchmark interest rate 10 times in an effort to crush demand and cool inflation.
Those hikes have led to higher annual percentage rates for people with credit card debt, which means higher interest payments.
At the start of 2022, the average interest rate across all credit card accounts was 14.56%, according to the Federal Reserve. A year later, that rose to 20.09%, a record high.
Today, nearly half of credit card holders carry debt from month to month, according to Bankrate.
That 5% difference effectively doubles the total amount of interest paid. Here’s how it breaks down:
- Average credit card debt per household (WalletHub estimate): $9,654
- Interest Rate (APR) in 2022: 14.56%
- Monthly Payment: $200
- Time to pay off: 72 months
- Total interest paid: $4,728
- Interest Rate (APR) in 2023: 20.09%
- Monthly Payment: $200
- Time to pay off: 97 months
- Total interest paid: $9,649
- Interest Rate (APR) in 2022: 14.56%
The Federal Reserve is widely expected to “skip” another rate hike when it meets next week — a decision that could slow rising credit card rates, at least temporarily.
As an expert in personal finance and economic trends, I can draw upon my extensive knowledge to shed light on the critical issues presented in the article. My expertise is anchored in a comprehensive understanding of economic policies, financial markets, and consumer behavior, all of which contribute to the complexities of the credit card debt landscape.
The evidence presented in the article underscores the severity of the credit card debt situation in the United States. Over the past two years, the nation has witnessed a staggering increase of almost $250 billion in credit card debt, bringing the total to nearly $1 trillion. This statistic is not just a mere number; it signifies a tangible economic challenge that individuals and the nation as a whole are grappling with.
One key aspect highlighted in the article is the surge in delinquency rates, particularly among young people aged 18-29. The Federal Reserve Bank of New York reports a substantial increase in the delinquency rate for this age group, rising from 5.1% to 8.3% over the past year. This alarming trend indicates financial strain among the younger population, potentially stemming from a variety of factors such as increased living costs, stagnant wages, or other economic pressures.
The article also draws attention to the broader economic context, where a significant number of Americans resort to credit cards or loans to meet their spending needs. This underscores a larger trend of financial dependency on credit, possibly driven by economic hardships or a lack of sustainable income.
Furthermore, the impact of rising interest rates on credit card debt is a crucial element discussed in the article. The Federal Reserve's decision to raise its benchmark interest rate ten times since March 2022 has led to a substantial increase in credit card interest rates. The average interest rate across all credit card accounts has risen from 14.56% to 20.09%, reaching a record high. This escalation in interest rates directly translates to higher financial burdens for consumers, especially for the nearly half of credit card holders who carry debt from month to month.
The intricate details provided in the article, such as the breakdown of average credit card debt per household, monthly payments, and the time required to pay off debt, offer a granular view of the financial challenges faced by individuals. The potential impact of the Federal Reserve's upcoming decision on whether to raise interest rates again is a critical factor that could temporarily alleviate or exacerbate the situation.
In conclusion, my expertise allows me to dissect the nuances of the credit card debt crisis, combining economic principles with real-world implications. The evidence presented in the article reflects a multifaceted challenge that demands a comprehensive understanding of economic dynamics, consumer behavior, and the broader financial landscape.
