U.S. Consumers Heading Towards Record Debt

The debt of American consumers has reached a new peak of $1.14 trillion in the category of credit card debt, according to recent figures from the Federal Reserve Bank of New York. This marks an increase of $27 billion compared to the $1.13 trillion debt recorded in the second quarter of 2024. This worrying trend coincides with fears of an economic downturn due to rising unemployment. Simultaneously, increasing costs for food, housing, and automobiles are straining household budgets. According to a May 2023 report from the Urban Institute, 60 percent of adults in the U.S. are using credit cards to finance their grocery purchases. Another factor contributing to this historic level of debt is the growing number of consumers who are falling behind on their credit card payments. Federal Reserve statistics show that in the second quarter, approximately 7.18 percent of cardholders were in arrears, up from 5 percent in the previous quarter. “More people are carrying more debt over longer periods,” explained Ted Rossman, a senior industry analyst at Bankrate, in a statement. After a reduction during the 2020 pandemic, credit card balances surged by a whopping 48 percent starting in 2021, driven by a post-pandemic boom in service spending, as well as high inflation and interest rates. A study from CreditCards.com in 2022 revealed that 60 percent of credit cardholders had been carrying debt for at least a year, a 10 percent increase from 2021. The situation is further exacerbated by rising interest rates, which have hit record highs for credit cards. The average interest rate for new credit cards now stands at 24.84 percent, the highest level since LendingTree began its records in 2019. Debt for mortgages and auto loans also increased by $77 billion and $10 billion, respectively, according to data from the Federal Reserve. As a result, total consumer debt grew to $17.8 trillion. A three-day stock market decline on Wall Street has prompted experts to question whether the Federal Reserve might implement an emergency rate cut before its September meeting. If this occurs, credit card companies could lower their annual percentage rates, providing relief to borrowers in the coming months, LendingTree credit analyst Matt Schulz told CBS News.