Americans broke a new record recently – as interest rates and inflation rise, credit card debt reached a whopping $1 trillion. The record number hit at the end of July, however, its share of U.S. gross domestic product is still lower than it was in 2010, according to Axios.
The Federal Reserve Bank of St. Louis reported that the total balance reached $1 trillion – roughly $998 billion the prior week, making this the highest level on record and $193 billion more than at the start of the year.
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Credit card debt rose $45 billion in the 2nd quarter, an increase of more than 4%, to above $1 trillion for the first time every. As #inflation pushes consumer prices higher and real wages lower, more Americans are turning to credit cards to make ends meet. This won't end well.
— Peter Schiff (@PeterSchiff) August 8, 2023
$1 trillion. That a lot of money. And that's the amount of interest the US Federal government is close to spending annually on its huge $31.4 trillion debt pile.
Public borrowing needs are on the rise thanks in part to Federal Reserve rate hikes that have taken its policy… pic.twitter.com/kEmdflBCLk
— James Eagle (@JamesEagle17) August 3, 2023
Rising levels of debt coincide with high interest rates on credit cards, reminiscent of levels observed over the past four decades. This trend occurs in tandem with a concerning surge in delinquencies, mostly amongst younger borrowers. As due dates for federal student loan payments approach this fall, a potential consequence is that a substantial portion of the population could increasingly turn to credit as a means of financial support.
“Consumers are going to have to resume their payments of federal student loans soon,” VantageScore President and CEO Silvio Tavares told Yahoo Finance. “The problem is that if they haven’t had to pay a loan for three years, a lot of people don’t have that money in their budget.”
According to the New York Fed, Americans from 18-29 had the highest credit card delinquency rates in the first quarter of 2023. Roughly, 8.5 percent were at risk of slipping 90+ days behind on payments. Those aged 30-39 came in second with a 6.1 percent rate and those 40 and up rating below 5 percent.
“I think it’s fairly clear that what we’re seeing now is becoming more and more about people struggling in the face of ongoing inflation and seemingly constant rising interest rates,” Chief LendingTree credit analyst Matt Schulz, previously told FOX Business. “It’s a tough time.”
“It’s been a really rough year for credit card holders,” Schulz added. “Even though the Fed seems to be taking their foot off the gas with interest rates, the unfortunate reality is credit card holders shouldn’t expect things to get a ton better anytime terribly soon, just because interest rates aren’t going down anytime soon.”
Schulz encourages credit card holders with debt to explore their options, including “calling and asking for a lower credit card APR, getting a 0% balance transfer credit card, reassessing their budget in order to better tackle the debt, exploring a high-yield savings account to take advantage of high interest rates and focusing on improving their credit score.”
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