August 8, 2023
Even with this inflation, the numbers prove Americans keep spending.
But it turns out – at least recently – we’ve been using our credit cards to do it. And now credit card debt has just hit a record high.
According to today’s household debt report — Americans racked up more than $1.03 trillion in credit card debt in the second quarter of 2023. And that has lead to a slight increase in overall in household debt. The next highest contributor to household debt…auto loans which increased by $20 billion in the second quarter.
Mortgage balances were basically unchanged from the previous quarter, and student loan balances actually fell by $35 billion in the second quarter.
So what does this mean?
Well experts say household budgets had benefitted from excess savings and pandemic-related debt forbearance for the last few years – but all that stuff is now gone or almost gone so people are turning to credit cards. Now don’t get it twisted – we’re not slowing our spending, we’re just turning to credit cards to spend. But we know those things are expensive. The average credit card interest rate is about 25%. So with less of a cushion in savings, that debt is going to rack up. So it’s likely that spending is going to start slowing down, which would then slow down the economy which will continue to reduce inflation. It’s also possible these debt numbers are going to get worse in the 4th quarter when federal student loan payments start back up.
Read the Household Debt report from the New York Fed here.
