The US credit card debt has reached an astonishing $1.08 trillion, marking a 15% annual increase, according to reports from the Federal Reserve Bank of New York and TransUnion (NYSE:TRU) on Tuesday. This comes as the average consumer balance climbed to a decade-high of $6,088, reflecting the growing financial strain amid persistent inflation.
New York Fed economists also reported on Tuesday that US credit card balances saw an eighth consecutive quarter of increase, with a record-breaking $154 billion annual jump in Q3. This growth mirrors the strong nominal spending and real GDP growth seen in recent times. Total household debt rose by $228 billion over the same period, primarily due to credit cards and student loans.
Despite the financial burden, consumers continue to resort to credit cards due to their accessibility. The latest quarter saw an additional 20.5 million new credit accounts opened, pushing the total number of credit cards close to a record 538 million.
However, delinquency rates are on the rise from historical lows during the pandemic, surpassing pre-pandemic levels. As of September, 3% of outstanding debt was delinquent, an uptick from the prior quarter. Around 9.5% of credit card balances were more than 90 days delinquent in Q3, up from 8% in Q2 and 7.6% in Q3 last year. Consumers with balances over $20,000 displayed the highest transition rates to delinquency.
Credit card interest rates have surged over 5% following the Federal Reserve's series of 11 rate hikes, including four in 2023 alone. This has escalated the cost of servicing credit card debt with the average Annual Percentage Rate (APR) now over 20%, an all-time high. Consequently, making minimum payments on this average balance would take over 17 years and incur more than $9,063 in interest.
Despite high debt levels, credit scores have reached an all-time high, and 62% of Americans live paycheck to paycheck. As a response to the rising debt, Greg McBride from Bankrate suggested using a 0% balance transfer card offering up to 21 months of no interest or refinancing into a lower-interest personal loan as solutions for high-cost debt. Remarkably, 76% of people successfully lowered their APR by requesting their card issuer.
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