Americans Amass Record $1 Trillion in Credit Card Debt

(Olivier Douliery/AFP via Getty Images)

The Federal Reserve Bank of St. Louis reported Friday that Americans now owe $1 trillion in credit card debt, a historic and troubling record.

The number comes as some credit card interest rates have hit their highest level in 40 years.

A recent WalletHub study found that the average interest rates for new offers—which are often offered at a discount compared to the standard rate—is 22.39 percent, a sharp increase from 18.89 percent one year ago. Previous years held similar averages, with 17.06 percent in 2010. The research group attributes the increase to recent Federal Reserve hikes.

Early last year, Fed interest rates were near zero, but since March 2022, the Fed has hiked rates 11 times. In late July, the rates hit a 22-year high at 5.5 percent.

The report warned that the credit card trends are indicative of the larger economic health picture.

“For example, 0% introductory APRs and initial rewards bonuses dried up during the Great Recession. And the decline in consumer credit quality during that period was a big reason why,” it said.

Credit card companies naturally tend to increase rates along with the Fed. One result is that debt deepens as Americans find their credit card balances harder to pay off, and owe more for their delays.

The average household now holds more than $10,000 in credit card debt, WalletHub estimates.

A recent Northwestern Mutual study found Americans with debt on average owe more than $21,000 outside of mortgages, and the top source of that debt was credit card debt.

The Q1 2023 Quarterly Credit Industry Insights Report from TransUnion, released in May, indicated that credit card holders are increasingly using that credit to pay for household essentials due to inflation.

Debt Breakdown

The Federal Reserve Bank of New York published a report (pdf) recently, breaking down debt categories.

Federal student loan debt repayments had been paused since the pandemic; payments will resume for student loans in October.

Student loan debt delinquencies stood at less than 1 percent, down slightly from the previous quarter. They had fallen substantially due to the Fresh Start program, which made previously defaulted loan balances current.

Mortgage balances saw a modest increase of $121 billion in the first quarter of the year; auto loans increased by $10 billion during the same period, and total non-housing balances grew by $24 billion.

The reports note that credit card balances typically decline the first quarter, but stayed flat this year.

An American Secret

Despite the increase in debt, Americans’ view of debt hasn’t changed much.

A recent NerdWallet survey found that a third of Americans have not told anyone how much they owe, and two in five say it is embarrassing to have credit card debt.

However, a big percentage of Americans are also keeping their financial situations secret from partners and family: 43 percent of respondents said they withheld information or lied to their partners about how much they owe, and 49 percent believed it was OK to have savings that their significant other doesn’t know about.

Most Americans (60 percent) believed parents should share financial information with adult children, and 74 percent of such parents said they have done so. However, parents with younger children (54 percent) are likely to withhold financial information from their own parents.

“Money and communication don’t always go hand in hand,” said Melissa Lambarena, a credit card expert at NerdWallet.

Younger Americans were more likely to withhold information or lie about their financial standing, with 63 precent of Gen Z (ages 18 to 26), 58 percent of millennials (ages 27 to 42), and 44 percent of Gen X (ages 43 to 58), and 19 percent of Baby Boomers (ages 59 to 77) saying they have done so.

Generally, Gen Z holds lower credit card debt than other age groups, according to an Experian report, as they are holders of new accounts. According to other surveys, the biggest source of debt for this group tends to be student loan debts.

Northwestern Mutual’s 2023 Planning & Progress Study found that those in debt spend around 30 percent of their income paying it off, but expect to remain in debt well past this year. However, nearly half (49 percent) plan to pay off debt within five years.

“More people feel like they’re moving in the right direction than those who do not, but there’s still a sizable universe of people carrying more debt than ever,” Christian Mitchell, chief customer officer at Northwestern Mutual stated.