Americans owe a record $1.21 trillion on their credit cards, according to a new report from the Federal Reserve Bank of New York. Credit card balances jumped by $45 billion in the fourth quarter of 2024, driven in part by holiday spending, and are now 7.3% higher than a year ago. Delinquencies remained elevated, with 7.18% of balances transitioning to delinquency over the last year.
This uptick could indicate that borrowers are having difficulty repaying, the researchers said. Stubborn inflation has shrunk a lot of Americans’ financial margin for error from slim to about none, forcing people to lean more heavily on credit card debt,” said Matt Schulz, chief credit analyst at LendingTree.
Credit card balances reach record levels
Credit card debt has remained stable over the last two decades. However, in the years since the pandemic, households largely spent down their excess savings, which sparked a rebound in credit card balances. Despite high borrowing costs, consumer spending continues to remain strong.
Lower-income households that had to stretch to cover expenses have been hit especially hard after the Federal Reserve’s rate increases lifted the average credit card rate to more than 20%. “For people who are carrying a balance, a higher interest rate is going to make those balances rise more quickly, and it’s also going to make the payments higher on a monthly basis,” the New York Fed researchers noted. As credit card debt continues to climb, financial experts urge consumers to be mindful of their borrowing habits and to explore other options for managing their debt.
Photo by; Pixabay on Pexels