US credit card debt reaches record high: An in-depth analysis

American consumers are carrying more credit card debt than ever before: outstanding balances rose to an impressive $1.14 trillion in the second quarter of this year. This data comes from a new report by the Federal Reserve Bank of New York and shows a remarkable increase of $27 billion in the first three months of 2024. Compared to the previous year, this represents a 5.8% increase. At the same time, delinquent payments have also slightly increased; currently, 9.1% of cardholders are behind on their payments. A recently released report from Bankrate shows that 50% of U.S. credit card users carry a balance on their accounts, an increase from 44% in January, reaching a level last seen at the beginning of the pandemic. Ted Rossman, Senior Credit Card Analyst at Bankrate, commented: "Credit card balances fell sharply in 2020 as many Americans spent less during the pandemic and used stimulus payments to pay down their debts. However, since early 2021, credit card debt has skyrocketed. According to Federal Reserve data, Americans now owe 45% more on their credit cards compared to early 2021. Credit card default rates are at their highest level since 2011." The study finds that credit card debt increases to some extent with age and that individuals with higher incomes have less debt than those with lower incomes. According to Bankrate, 42% of Gen Z, 53% of Millennials, 60% of Generation X, and 48% of Baby Boomers carry ongoing credit card balances. In terms of income levels, 58% of cardholders with an annual household income under $50,000 carry a balance from month to month, compared to 54% with an annual income between $50,000 and $79,999, 46% with an income between $80,000 and $99,999, and 43% with an annual income of $100,000 or more. Record-high credit card interest rates are exacerbating the collective debt cycle of consumers. According to a LendingTree report, the average credit card interest rate is currently 24.84%. Since the end of July, average credit card interest rates have not decreased over 29 consecutive months. Although interest rates have remained stable at times during this period, they have not decreased since February 2022, when they fell by just two-hundredths of a percentage point – the month before the Federal Reserve began its measures to combat inflation. An individual’s credit score has a significant impact on the interest rates charged by card issuers, according to the report. An applicant with a very good credit rating can expect an average annual interest rate of 21.41%, while someone with a poor credit history can expect an average of 28.28%. An example from LendingTree illustrates how these credit differences affect interest payments when the cardholder pays off a balance over time. Someone who spends $5,000 on a card and pays $250 monthly.