U.S. consumers are carrying more debt than ever before on their credit cards with outstanding balances reaching $1.14 trillion in the second quarter of the year, according to a new report from the Federal Reserve Bank of New York.
Credit card balances grew by $27 billion over the first three months of 2024, according to the report, and are up 5.8% over last year. Delinquency rates for credit card holders also increased slightly last quarter with 9.1% of card holders now in default on their outstanding balances.
Earlier this week, Bankrate released new data showing that 50% of U.S. credit card users are carrying a balance on their accounts, up from 44% in January and a rate not seen since the early days of the pandemic.
“Credit card balances fell sharply in 2020 as many Americans spent less during the pandemic and used stimulus funds to pay down debt,” said Bankrate senior credit card analyst Ted Rossman in the report. “Since the beginning of 2021, however, credit card balances have been off to the races. According to Federal Reserve data, Americans owe 45% more now on their credit cards than they did in early 2021. And the credit card delinquency rate is at its highest point since 2011.”
The report notes that while carryover credit card debt rises with age to a certain point, those with higher incomes carry balances at a lower rate than those with lower earnings. Bankrate reports 42% of Gen Zers, 53% of millennials, 60% of Gen Xers and 48% of baby boomers with credit cards carry a balance from month to month. Looking at the relationship of income levels to credit card balances, 58% of cardholders with annual household incomes under $50,000 carry a balance month to month, compared to 54% with annual household incomes between $50,000 and $79,999, 46% with annual household incomes between $80,000 and $99,999 and 43% with annual household incomes of $100,000 or more.
What’s your interest?
Record-high credit card interest rates are exacerbating the collective consumer credit card debt cycle with the average credit card interest rate now at 24.84%, according to a report from LendingTree.
As of the end of July, the average U.S. credit card rate has now gone 29 straight months without a decrease. While rates have held steady on a month-to-month basis several times in the period, they haven’t decreased since they dipped by two-hundredths of a percentage point in February 2022 — the month before the Federal Reserve began raising rates to try to combat inflation, according to LendingTree.
An individual’s credit score can have a big impact on the rates charged by card issuers, according to the report. An applicant with very good credit can expect an average APR of 21.41% while someone with poor credit history will see an average APR offer of 28.28%.
Here’s an example of how those credit differences are reflected in interest payments if the card holder pays off an outstanding balance over time, calculated by LendingTree. For someone who has spent $5,000 on a card and pays $250 a month on their balance:
- With a rate of 28.28%, you’ll pay $1,842 in interest and take 28 months to pay it off.
- Lower the rate to 21.41% and you’ll pay just $1,239 in interest and take 25 months to pay it off.
- That’s a savings of $603 in interest and three months in payoff time. In normal times, given that most Americans’ financial margin for error is tiny, that’s a big deal. However, these aren’t normal times, so those savings are even more important.