Credit card debt poised to smash another record high

Americans are racking up more credit card debt as still-high inflation and steep interest rates continue to make the cost of everyday necessities more expensive. 

The New York Federal Reserve Bank’s Quarterly Report on Household Debt and Credit, slated for release on Tuesday morning, is expected to show that credit card debt hit a new record during the three-month period from January to March, smashing a previous high of $1.13 trillion, according to Matt Schulz, chief credit analyst LendingTree.

“Credit card balances have never risen from the fourth quarter of one year to the first quarter of the following year. I think there’s a good chance we’ll see a first-of-its-kind increase in tomorrow’s report, which would mark a new record for Americans’ credit card balances,” Schulz said.

The expected spike marks a major reversal from 2020, when consumers were rapidly paying down their credit card bills as the result of stay-at-home mandates and an influx of stimulus money. 

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Since then, credit card debt has exploded. From 2021 to the end of 2023, credit balances jumped 47% – the steepest three-year climb on record.

The ongoing inflation crisis is one reason that consumers are increasingly relying on credit cards to pay their bills.

“High inflation and high interest rates are significantly contributing to Americans’ debt loads and making this debt harder to pay off,” Schulz said. 

While inflation has fallen considerably from a peak of 9.1% notched during June 2022, it remains well above the Federal Reserve’s 2% goal. Additionally, when compared with January 2021, shortly before inflation began to surge, prices are up a stunning 18.9%.

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High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. Grocery prices are up 21% from the start of 2021, while shelter costs are up 20.4%, according to FOX Business calculations. Energy prices, meanwhile, are up 32.8%.

Americans are paying on average $784 more each month compared with the same time two years ago and $1,069 more compared with three years ago, according to Moody’s Analytics.

The rise in credit card usage and debt is particularly concerning because interest rates are astronomically high right now. The average credit card annual percentage rate, or APR, is hovering around 20.66%, near a record high, according to a Bankrate database that goes back to 1985. 

If people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if someone owes $5,000 in debt – which the average American does – current APR levels would mean it would take about 279 months and $8,124 in interest to pay off the debt making the minimum payments. 

Schulz encouraged credit card holders with debt to explore their options, including calling and asking for a lower credit card APR, getting a 0% balance transfer credit card, reassessing their budget in order to better tackle the debt, exploring a high-yield savings account to take advantage of high interest rates and focusing on improving their credit score.