US households increased their credit card balances significantly in the third quarter as inflation forced some consumers to borrow to cover additional expenses.
Credit card balances are up more than $38 billion, or 15%, from a year ago, the biggest increase in more than 20 years, according to a new report from the Federal Reserve Bank of New York. York.
The year-over-year increase is “substantial,” New York Fed researchers said in a call with reporters on Tuesday.
The recovery in consumer borrowing marks the third consecutive quarter of notable increases in credit card balances. This comes just before the fourth quarter, when sales typically see their biggest jump thanks to holiday spending. At the same time, delinquency levels are also on the rise, a sign that more consumers are struggling to pay off their higher balances.
The trajectory of card balances in the future depends on the pace of income gains relative to inflation, the researchers said. So far, revenue increases have failed to keep up with rapid price increases.
Credit card balances grew steadily in 2022. In the second quarter, consumers added $46 billion new debts to their cards. In 2020 and 2021, stimulus payments, unemployment benefits and savings on expenses such as commuting have helped consumers swell their bank accounts and reduce their reliance on credit cards.
Younger consumers and those with lower incomes increased their card balances the most between July and September, the New York Fed said. Borrowers under 30 hit $70 billion in balances in the third quarter, above the group’s pre-pandemic total. For borrowers aged 30 to 59, balances have increased in recent quarters and are approaching what they were in the fourth quarter of 2019. Card balances for those aged 60 to 79 have not increased. still at pre-pandemic levels.
Residents of ZIP Codes with average incomes in the bottom 25% increased their balances to about $2,408 in the third quarter, above the average of $2,319 in the fourth quarter of 2019. ZIP Code Borrowers with the highest incomes fared better, reducing their average balance. balances of $300 between the end of 2019 and the third quarter of 2022.
More and more households are struggling to repay their debts, according to the New York Fed report. The proportion of consumers at least 30 days past due increased across all income brackets in the third quarter, with the most pronounced increase among low-income borrowers. Yet crime rates for all income groups remain below pre-pandemic levels.
Earnings from major credit card companies released this week show levels of delinquent and written-off loans are on the rise.
At Synchrony Financial, loans past due for at least 30 days rose to 3.4% last month, from 2.9% six months ago and 2.2% a year ago. Capital One Financial’s delinquency rate rose to 3.17%, which is still lower than the 3.79% recorded in October 2019.
Capital One and Synchrony said net charges rose 70 and 40 basis points, respectively, in October from the previous month.
Overall, US household debt rose $351 billion to $16.51 trillion in the third quarter. Auto loans increased by $22 billion, mortgage balances increased by $282 billion and student loan balances decreased by $15 billion.