Total credit card debt reached $1.03 trillion in the second quarter of 2023, according to a report published by the Federal Reserve Bank of New York. Indeed, credit card balances have now notched seven consecutive quarters of year-over-over growth. It is the first time that credit card debt has topped $1 trillion.
Total credit card debt rose nearly 5%, or about $45 billion, in the second quarter to a new high of more than a trillion dollars. Although delinquency rates are still low by historical standards, rising balances may present challenges for some borrowers going forward, particularly when student loan payments resume this fall, according to the Federal Reserve Bank of New York.
Matt Schultz, Lending Tree’s chief credit analyst stated: “The resumption of student loan payments will be a huge test for many cardholders, shrinking the amount they have to devote to paying off card debt and leaving some people simply unable to make minimum payments at all.”
Credit Card Balances
Source: Federal Reserve Bank of New York
Debt in America is perhaps the most used financial instrument by American consumers since the economy runs on credit. The possibility to purchase things and pay for these things later has made American consumers addicted to debt. It is, therefore, unsurprising that credit card debt increased all the way to the trillion-dollar benchmark.
As a matter of fact, the increase in credit card debt is being driven by several factors such as the rising cost of living, the coronavirus pandemic, and the easy availability of credit.
The increase in inflation in 2021 has significantly contributed to the rising cost of living, which has made it more expensive for people to buy everyday goods and services. This has led some people to turn to credit cards to cover their expenses.
The coronavirus has also contributed to the rise in credit card debt. Many people lost their jobs or had their hours reduced during the pandemic, which made it difficult for them to pay their bills. This led some people to use credit cards to cover their expenses.
Lastly, credit card companies have made it easier than ever for people to get credit cards, even if they have poor credit. This has made it easier for people to overspend and accumulate debt.
The increase in credit card debt is a cause for concern. It is one of the major obstacles that prevent Americans from building wealth. It reduces their balance sheet, which means that American consumers sell their assets and are not reinvesting the proceeds of maturing assets, in order to pay back their debt.
As a matter of fact, many Americans are forced to reduce their balance sheet because they are overleveraged. For example, the average credit card debt in the United States is over $6,000. This is a significant amount of debt, especially for people with low incomes. Additionally, many people are carrying high-interest debt, such as payday loans and title loans. These loans can be very expensive to repay, and they can trap people in a cycle of debt.
It is important for people to be aware of the risks of using credit cards and to make sure that they are able to repay their debts. Making unnecessary purchases, increasing one’s lifestyle accordingly to an increase in his/her wage, and the lack of budgeting, are additional factors that put many consumers into credit card debt.