Americans’ $1 Trillion Credit-Card Debt: Is the Tide Finally Turning?
The US credit-card debt crisis is far from over, but there’s a glimmer of hope. Americans are still racking up credit-card balances, but a key metric — credit-card delinquencies — is showing signs of improvement, thanks to the easing of inflation. The Federal Reserve Bank of New York’s latest Household Debt Report highlights an important shift: while overall credit-card debt continued to rise in Q3, fewer people are falling behind on their payments.
The total outstanding credit-card debt in the US reached a staggering $1.17 trillion in the third quarter of 2023, an increase of $24 billion. However, the percentage of that debt that became delinquent — those overdue by 30 days or more — dropped slightly for the first time in nearly three years.
So, what does this shift mean for American consumers? Could the tide be turning in the battle against credit-card debt? Let’s break it down.
Credit-Card Debt Climbs, but Delinquencies Drop
In the third quarter of 2023, credit-card balances climbed by nearly 7% year-over-year, reflecting a continued reliance on credit cards amidst inflationary pressures. However, the silver lining came in the form of delinquency rates. According to the Federal Reserve Bank of New York, 8.8% of outstanding credit-card debt became 30 days overdue, down from 9% in Q2 — a modest but significant decline.
This reduction in delinquency rates is seen as an encouraging sign, especially considering how high credit-card delinquency rates have been in recent years. To put this into context, delinquencies on credit cards have been steadily increasing since the pandemic, as consumers struggled with rising prices and lower disposable income.
Key Findings in Q3 2023:
- Credit-card balances increased to $1.17 trillion.
- Delinquency rates dropped from 9% to 8.8%, signalling a potential slowdown in financial strain.
- The average credit-card debt per borrower was nearly $6,400, a slight increase from the previous quarter.
Though delinquencies remain historically high, the dip in late payments is encouraging. The question is, what’s driving this change, and will it last?
Why Are Credit-Card Delinquencies Declining?
Several factors could explain the improvement in credit-card delinquencies, but the primary reason seems to be the easing of inflation. After months of surging prices, inflation has begun to cool, providing some relief to consumers who were struggling to keep up with rising costs. As inflation moderates, many Americans are finding it easier to manage their monthly expenses.
Key Factors Driving the Shift:
- Inflation Eases: Inflation has cooled slightly, meaning consumers don’t have to rely as heavily on credit cards to cover their daily expenses.
- Wage Growth: Although inflation is still higher than normal, wages are increasing, giving people more purchasing power to meet their obligations.
- Tighter Lending Standards: Credit-card lenders have become more cautious, tightening credit requirements and preventing more people from taking on high levels of debt in the first place.
Michele Raneri, vice president and head of U.S. research at TransUnion, suggests that consumers are adjusting to inflation’s new normal. With inflation showing signs of stabilising, people are less likely to rely on credit cards to make ends meet, resulting in more responsible spending habits and fewer delinquencies.
What About Other Forms of Debt?
It’s not just credit-card debt that has increased in recent months. Americans have also seen rises in auto loans, student loans, and mortgage debt. The latest New York Fed report showed an increase in all forms of household debt, which suggests that while credit-card debt may be easing, overall financial pressure is still high.
However, auto loans are a particular concern. The delinquency rate for auto loans continued to climb, with 8.1% of all auto-loan debt slipping into delinquency. This was especially concerning for loans that were 90 days overdue. Car-loan delinquencies have risen steadily, hitting levels not seen since the aftermath of the Great Recession.
What Happens Next? The Holiday Season and Beyond
While the latest data is promising, it’s unclear whether this trend will continue, especially with the holiday season fast approaching. Historically, the fourth quarter sees an increase in spending, which could push credit-card balances higher. With Black Friday, Cyber Monday, and Christmas just around the corner, consumers could once again max out their credit cards, leading to more delinquencies in early 2024.
The good news is that wage growth and moderating inflation could help consumers stay on top of their payments. But as we’ve seen before, rising holiday spending can quickly derail even the most well-intentioned budgets.
Is the Credit-Card Debt Crisis Over?
The short answer is: no, but it’s improving. While overall credit-card balances are still rising, the slight dip in delinquencies is a positive sign. With inflation easing and wage growth on the rise, consumers might be on their way to a healthier financial future, at least in the short term. However, Americans’ reliance on credit cards is still high, and the $1.17 trillion in credit-card debt is nothing to sneeze at. Financial stress is still widespread, and many households continue to struggle.
As we move into the final months of 2023, it will be interesting to see if the current trend of improving delinquencies holds up, or if the holiday season throws another wrench into consumers’ budgets.
What Can Consumers Do to Stay on Top of Their Debt?
If you’re concerned about your credit-card debt, here are a few tips to help keep it under control:
- Set a Budget: Track your spending and stick to a budget to avoid impulse buys that can add up quickly.
- Pay More Than the Minimum: Paying only the minimum on your credit cards can leave you stuck in a cycle of debt. Aim to pay more to reduce your balance faster.
- Consider Balance Transfers: If you’re carrying high-interest debt, a balance transfer to a lower-interest card could help you pay off your debt more quickly.
- Seek Help if Needed: If you’re struggling with debt, consider speaking to a financial advisor or credit counsellor for guidance.
Conclusion: A Positive Shift in US Credit-Card Debt
While Americans’ credit-card debt remains at staggering levels, the improvement in delinquency rates offers a glimmer of hope. The combination of easing inflation, wage growth, and stricter lending standards may be helping consumers regain control over their finances. Still, the rise in overall household debt, especially in the form of auto loans, indicates that financial strain is still widespread.
As the holiday season approaches, it will be crucial for consumers to stay vigilant about their spending and repayment habits. But for now, the slight dip in credit-card delinquencies is a step in the right direction.
Relevant Links for Further Reading:
- Federal Reserve Bank of New York – Household Debt Report NY Fed
- TransUnion Credit Trends TransUnion
- How to Manage Credit-Card Debt Consumer Financial Protection Bureau
