Amid High Interest Rates and Inflation... US Credit Card Debt Surpasses $1 Trillion for the First Time

As Americans face inflation and high interest rates, the total amount of credit card debt in the United States has surpassed $1 trillion (approximately 1,300 trillion won) for the first time in history, driven by increased credit card usage. The number of Americans unable to pay their credit card bills is also on the rise.

According to the household credit report released on the 8th (local time) by the Federal Reserve Bank of New York, U.S. credit card debt in the second quarter rose 4.6% ($45 billion) from the previous quarter to $1.03 trillion. This is the first time credit card debt has exceeded $1 trillion. The previous record was $986 billion. The New York Fed stated in the report, "After a sharp contraction in the first year of the pandemic, credit card debt has increased for seven consecutive quarters year-over-year," adding, "It grew 16.2% year-over-year, maintaining a strong trend."

[Image source=AP Yonhap News]

This confirms that despite aggressive interest rate hikes and high inflation, U.S. consumer spending remains robust. The New York Fed assessed, "Despite the high interest rates, inflationary pressures, and banking concerns faced by U.S. consumers last year, there is little evidence of widespread financial distress among consumers." Bloomberg reported that credit card holders currently have an additional $3.6 trillion in available credit.

However, as credit card debt increases, the pressure of debt inevitably grows. Credit card debt is counted as household debt until the monthly billing amount is paid to the card companies. In the second quarter, total U.S. household debt rose 0.1% from the previous quarter to $17.06 trillion. While the mortgage balance, which accounts for more than 70% of household debt, remained relatively stable at $12.01 trillion, the increase in credit card debt was particularly notable in its contribution to the overall rise.

In the second quarter, auto loan balances increased by $20 billion to $1.58 trillion, surpassing student loan debt for the first time since 2009. Student loan debt decreased by $35 billion to $1.57 trillion. Locally, there are concerns that the situation could become more complicated starting this October, when principal and interest repayments resume following a recent U.S. Supreme Court ruling that halted the federal government's student loan forgiveness policy. The New York Fed predicted, "Rising credit card debt may cause difficulties for some borrowers, and the resumption of student loan repayments this fall could add additional financial burdens for many student loan borrowers."

As credit card usage increases, delinquency rates are also rising. The rate of credit card payments overdue by 30 days or more rose from 6.5% in the first quarter to 7.2% in the second quarter, the highest level since the first quarter of 2012. However, the New York Fed evaluated that these delinquency rates appear to have normalized to pre-pandemic levels, explaining that delinquency rates were "abnormally low" during the pandemic. By age group, Americans aged 18 to 29 had the highest credit card delinquency rate at 8.8%, followed by those aged 30 to 39 at 7%. The delinquency rate for those aged 40 and above was below 5%.

Approximately 69% of Americans currently have a credit card account as of the second quarter. This is an increase from 65% in December 2019 and 59% in December 2013. It is estimated that more than 70 million new credit card accounts have been opened compared to pre-pandemic levels in 2019. However, credit conditions such as loan approvals have tightened this year. The credit card application denial rate in June was 21.8%, the highest since June 2018. Earlier, a survey of senior loan officers released by the Federal Reserve (Fed) indicated that due to uncertain economic outlooks, lending standards at U.S. banks have recently become stricter, and demand has also weakened.