America’s credit card debt hits a record $1 trillion as households opened 5.48 million additional accounts this year as the average interest rate rises to 20.53%
- America’s credit card debt has hit $1 trillion for the first time in history, according to the Fed
- Experts called the sum “staggering” as average interest rates on cards reached 20.53 percent
- The data highlights the struggle households are struggling to keep up with rampant inflation and higher interest rates
Federal Reserve data shows America’s credit card debt has surpassed $1 trillion for the first time in history.
Credit card balances rose $45 billion in the second quarter of the year as interest rates — recently hitting their highest levels since 2001 — and rampant inflation continue to squeeze households.
Experts called the total “staggering,” and the numbers also showed that credit card delinquencies had hit an 11-year high.
Previous estimates had put the country’s debt at $1 trillion, yet the Fed’s analysis has historically remained more conservative.
Despite the bleak numbers, the agency’s researchers said they are seeing “some early signs” that household debt is starting to stabilise.
Federal Reserve data shows America’s credit card debt has surpassed $1 trillion for the first time in history
In a blog post accompanying the report, they wrote, “Despite the many headwinds American consumers have faced over the past year — higher interest rates, post-pandemic inflationary pressures and recent bank failures — there is little evidence of widespread financial distress among consumers.” .’
But experts were less convinced. LendingTree senior credit analyst Matt Schulz told Fox Business, “$1 trillion in credit card debt is staggering.”
“Unfortunately, it will probably only continue to grow from here.” “The driving forces are inflation, higher interest rates and more generally how expensive life is in 2023.”
Household finances have been choppy for a number of years, with credit card debt falling sharply during the pandemic as spending was curbed by the lockdown.
Between the last quarter of 2019 and the second quarter of 2020, card balances fell from $927 billion to $817 billion — a decrease of 11 percent. And in the first quarter of 2021, they fell even further to $770 billion.
Since then, households have been under unprecedented financial pressure from rising inflation and subsequent rate hikes by the Fed.
In June, the annual inflation rate cooled to 3 percent after peaking at 9.1 percent in the same month last year.
To contain the crisis, the Fed has repeatedly hiked interest rates, driving up the cost of mortgages and credit card borrowing.
The Federal Reserve hiked interest rates by a quarter of a percentage point, bringing benchmark borrowing costs to their highest level in more than two decades. Fed Chairman Jerome Powell will announce the decision on July 26
Relentless interest rate hikes have put households under unprecedented financial pressure
In July, officials hiked interest rates by a quarter of a point, taking benchmark borrowing costs to their highest levels in more than two decades. The central bank unanimously decided to raise interest rates to between 5.25 and 5.5 percent – a range not seen since early 2001.
Data from state-backed lender Freddie Mac shows that the average interest rate on a 30-year mortgage is now 6.9 percent — more than double what it was two years ago.
This added pressure has forced households to take extreme measures to cover their spending.
Yesterday, a Bank of America report revealed that the number of workers taking “hardship withdrawals” from their 401(K)s rose 36 percent.
And according to the latest Fed data, there are 578.35 million credit card accounts in the US. That’s an increase of 5.48 million from the end of last year.
According to Bankrate, the average interest rate on credit card balances is also near a record 20.53 percent.