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Americans increasingly turned to their credit cards to make ends meet heading into the summer, pushing total balances above $1 trillion for the first time ever, the New York Federal Reserve reported Tuesday.
Total credit card debt increased by $45 billion from April to June, an increase of more than 4%. That brought the total amount of debt to $1.03 trillion, the highest gross value in Fed data going back to 2003.
The increase in this category was the most notable, as total household debt rose by about $16 billion to $17.06 trillion, also a new record.
“Household budgets have benefited from excess savings and pandemic-related debt burdens over the past three years, but the remnants of those benefits are coming to an end,” said Elizabeth Renter, data analyst at personal finance site NerdWallet. “Credit card delinquencies continue an upward trend, a growing sign that consumers are feeling the pressure of high prices and lower savings than just a few years ago.”
As card usage grew, so did the number of payment defaults.
The Fed’s measure of credit card debt 30 or more days overdue rose to 7.2% in the second quarter, up from 6.5% in the first quarter and the highest rate since the first quarter of 2012, although close to the long-term normal, central bank officials said. . The total number of overdue debts increased from 3% to 3.18%.
“Credit card balances saw brisk growth in the second quarter,” said Joelle Scally, regional economic director within the New York Fed’s Household and Public Policy Research Division. “And while crime rates have risen, they appear to have normalized to pre-pandemic levels.”
Fed researchers say the rise in balances reflects both inflationary pressures and higher consumption levels.
In terms of inflation, household income, adjusted for inflation and taxes, is about 9.1% below April 2020 levels, putting additional pressure on consumers, according to SMB Nikko Securities.
“This is a problem because the sustainability of consumers’ pandemic debt binge was partly dependent on their incomes steadily rising,” said Troy Ludtka, senior U.S. economist at SMBC Nikko, in a client note. “Instead, the opposite happened, and now the rate at which borrowers are late on their debt payments is back to pre-Covid levels. This could be the latest challenge facing troubled commercial banks.”
The central bank also said demand for card issuance has declined, which was accompanied by banks saying lending conditions were tightening.
Debt in other categories showed only modest changes. New mortgages originated rose to $393 billion, although total mortgage debt fell to just over $12 trillion. Auto loans rose by $20 billion to $1.58 trillion and student loans fell to $1.57 trillion, prior to the lifting of the moratorium on payments.
Correction: New mortgage originations rose to $393 billion. In an earlier version the move was displayed incorrectly.