According to the latest data from the Federal Reserve, consumer credit in the United States has seen a significant rebound, reaching almost $5 trillion. This article examines the implications of this substantial increase in consumer credit, examining the growing dependence on credit cards, concerns about high interest rates, and the impact of impending student loan repayments.
Consumer credit rises to $4.98 trillion
In July, total consumer credit registered an annual growth rate of 2.5%, rising to approximately $4.98 trillion, as reported by the Federal Reserve. This increase can be attributed to both revolving credit, mainly from credit cards, which grew at an annual rate of 9.2%, and non-revolving credit, including personal loans, which saw a more modest annual growth rate of 0.2%.
High-interest credit cards worry economists
Despite a slight dip, ongoing credit growth remains robust, raising concerns about potential household strains due to increased borrowing in a higher interest rate environment. Curt Long, NAFCU vice president of research and chief economist, expressed these concerns and emphasized the need for caution amid this credit expansion.
Interest rate differences arise
One notable observation is the significant difference in interest rates between credit cards and personal loans. The average credit card interest rate in the second quarter of 2023 was 20.68%, which represents a significant increase from 15.13% in the same period of the previous year. Conversely, the average interest rate for personal loans was a relatively lower 11.48%, according to recent data from the Federal Reserve Bank of St. Louis.
Credit card dependence amid inflation
The rising cost of living, marked by high inflation rates, has prompted many Americans to rely more heavily on credit cards. A Quicken survey found that two in five U.S. credit card holders now consider themselves more dependent on their credit cards than ever before. Additionally, 38% expect to need their credit cards to cover unforeseen expenses.
Financial problems are looming for credit card users
While credit cards provide short-term relief, a troubling trend is emerging as many Americans fear they will not be able to pay off the debt they have accumulated. The same Quicken survey found that 35% of Americans are likely to use at least one credit card by the end of 2023, indicating financial vulnerability.
Navigating High Interest Debt
For individuals struggling with high-interest credit card debt, exploring the option of paying it off with a lower-interest personal loan could be a viable solution. Consulting with a personal loan expert at Credible can provide tailored advice to reduce monthly financial costs.
Student loan debt is approaching $1.76 trillion
In the second quarter of 2023, outstanding student loan debt rose to approximately $1.76 trillion, an annual increase of approximately $1.74 trillion. With millions of borrowers about to resume federal student loan payments after a three-year hiatus, concerns loom over the financial strain this will bring.
Looming student loan payments lead to credit card considerations
An Empower survey found that 33% of Americans will face an increase in debt costs of at least $1,000 per month when student loan payments resume in October. As a result, 32% of borrowers are considering using credit cards to bridge the gap.
Federal initiatives aim to ease the burden of student loans
In response to these challenges, President Joe Biden has introduced initiatives such as the Saving on A Valuable Education (SAVE) plan, an income-driven repayment (IDR) plan that could reduce monthly payments to zero for many borrowers. However, private student loan holders are not eligible for these federal programs and should consider loan refinancing as a possible solution.
Strategies to tackle debt
Despite the massive collective debt of $1.7 trillion, several strategies are available to accelerate debt repayment:
For individuals looking to tackle high-interest debt, exploring personalized solutions in the Credible market can provide a path to financial relief.