U.S. Household Debt Reaches Record High, Credit Card Rates Highest in 30 Years
By A new report from the Federal Reserve Bank of New York’s Center for Microeconomic Data showed that U.S. household debt rose to a record $16.9 trillion in the fourth quarter of 2022.[0] Credit card debt in particular reached a record high of $986 billion, surpassing the pre-pandemic level of $927 billion.[1] Other forms of debt also rose, with mortgage balances increasing to $11.92 trillion and auto loan balances rising to $1.55 trillion.[1]
The report also found that the share of current debt transitioning into delinquency increased for nearly all debt types. With stubbornly high prices and climbing interest rates, some borrowers are finding it difficult to keep up with their payments.[2] Credit card delinquency transition rate for borrowers in their 30s rose by 3.2%, while those in their 20s rose by 2.9%.[3] Mortgage delinquency rates rose to a seasonally adjusted rate of 3.96%, while the share of loans on which foreclosure actions were started in Q4 dropped by one basis point to 0.14%.[4]
Balance transfer credit cards may be a helpful tool for those in high debt, as they allow consumers to swap out of high-interest credit cards and into low-interest (or even no-interest) credit cards. This can help cardholders pay down their debt faster without the added burden of high-interest charges.[5]
As the Federal Reserve continues to raise interest rates to contain inflation, credit card holders are feeling the pinch of higher borrowing costs.[6] Bankrate has reported that the average credit card rate is at its highest point in 30 years and is currently at 19.9%. The rate could still increase in the future.[6]
Overall, mortgage and auto loan balances grew at a more moderate pace than credit cards, but unemployment has been closely tied to delinquency trends.[7] The MBA expects unemployment to rise to 5.2% by the end of the year, which could lead to further increases in mortgage delinquencies.[8] Nevertheless, the foreclosure starts rate of 0.14% remained well below the historical quarterly average of 0.40%.[9]
Many distressed homeowners still have loss mitigation options available to them, and have accumulated home equity which can help ease financial hardship and avert foreclosure actions.[8] Balance transfer credit cards and other debt consolidation tools can also be used to help manage and pay down debt more quickly.
0. “Nation's Household Debt at $16.9 Trillion – The Presidential Prayer Team” The Presidential Prayer Team, 20 Feb. 2023, https://www.presidentialprayerteam.org/2023/02/20/nations-household-debt-at-16-9-trillion/
1. “US household debt grows to nearly $17T as credit cards pass pre-pandemic high” Proactive Investors USA, 17 Feb. 2023, https://www.proactiveinvestors.com/companies/news/1006581/us-household-debt-grows-to-nearly-17t-as-credit-cards-pass-pre-pandemic-high-1006581.html
2. “US credit card debt now totals nearly $1 trillion” Southern Minnesota News, 17 Feb. 2023, https://www.southernminnesotanews.com/syndicated-article/?id=1490654
3. “Younger Borrowers Are Struggling with Credit Card and Auto Loan Payments – Liberty Street Economics” Liberty Street Economics -, 16 Feb. 2023, https://libertystreeteconomics.newyorkfed.org/2023/02/younger-borrowers-are-struggling-with-credit-card-and-auto-loan-payments
4. “Delinquency rate for mortgage loans on the rise – MBA” Mortgage Professional, 17 Feb. 2023, https://www.mpamag.com/us/mortgage-industry/market-updates/delinquency-rate-for-mortgage-loans-on-the-rise-mba/436766
5. “Almost 40% of Americans Don't Know About This Fast Way to Pay Down Credit Card Debt.” Rockdale Newton Citizen, 14 Feb. 2023, https://www.rockdalenewtoncitizen.com/arena/almost-40-of-americans-don-t-know-about-this-fast-way-to-pay-down-credit/article_6326c640-7845-5024-80d6-fccab65f650e.html
6. “Credit Card Debt: How to Pay Off” TIME, 17 Feb. 2023, https://time.com/6256336/credit-card-debt-how-to-pay-off/
7. “Americans’ credit-card balances just zoomed past prepandemic levels” MarketWatch, 16 Feb. 2023, https://www.marketwatch.com/story/americans-credit-card-balances-just-zoomed-by-pre-pandemic-levels-a4769e4d
8. “Mortgage Delinquency Rate Edged Up in Q4 2022 But Loan Performance Remained Stellar” Mortgageorb, 18 Feb. 2023, https://mortgageorb.com/mortgage-delinquency-rate-edged-up-in-q4-2022-but-loan-performance-remained-stellar
9. “Mortgage delinquencies rise as economy stumbles” National Mortgage News, 16 Feb. 2023, https://www.nationalmortgagenews.com/news/mortgage-delinquencies-rise-as-economy-stumbles
