Household, Credit Card Debt Continues to Soar
Household debt has quickly become a growing problem within our nation. According to the Federal Reserve Bank of New York, at the end of the third quarter, total household debt in the U.S. reached a record-high $17.29 trillion, up 4.8% over the past 12 months. Within that household debt lies a record-high $1.08 trillion in credit card debt, up a hefty 16.6% over the past year. Since the first quarter of 2021, when inflation started to surge, credit card debt has risen by a staggering 40.1%.
There are currently a record-high 589.6 million open credit card accounts – roughly 2.3 credit cards for every person 18 years or older living in the U.S. Consumers are also having a harder time paying all these credit cards off. 8.01% of all credit card balances are 30 days or more delinquent. This is a 22-year high and up 76% since the first quarter of 2021. 5.78% are classified as seriously delinquent, being 90 days or more past due. This is also a 22-year high and a 53% increase since the first quarter of 2021.
The rise in credit card debt, as well as delinquencies, is yet another sign of wear-and-tear on consumers from nearly three years of high inflation. According to a recent survey by LendingClub, 60% of all U.S. consumers say they are living paycheck-to-paycheck. 19% say they are struggling to pay their monthly bills.
These financial strains have quickly expanded to the middle class. While 76% of low-income consumers (less than $50,000 annual income) say they live paycheck-to-paycheck, 65% of those earning $50,000-$100,000 also say they live paycheck-to-paycheck. For those earning more than $100,000, a surprising 42% live paycheck-to-paycheck.
The big test for consumers is the November-December retail holiday shopping season. According to the National Retail Federation, holiday shopping this season is expected to reach $962 billion, up 3.5% from last year. Retailers are well aware of the many challenges consumers are facing. Savings accounts are dwindling, household debt and credit card debt are at record levels, inflation remains stubbornly high and interest rates are at multi-decade highs.
Consumers also remain concerned about the future outlook of the economy. In LendingClub’s survey, 62% of respondents say they are very or extremely concerned about the economic outlook. 58% say that consumer prices are still rising faster than their paycheck. 38% say their financial situation has worsened since last year.
To address their budgetary shortfalls, consumers will rely on their credit cards to help bridge the gap in their personal finances. This year, 32% of holiday shoppers will use credit cards to fund their purchases. Those who live paycheck-to-paycheck and struggle to pay their bills are expected to use their credit cards the most. 52% of these consumers will use credit cards to fund their holiday shopping.
Wall Street argues the record-high $1.08 trillion in credit card debt Americans collectively hold is simply not sustainable. According to the Consumer Financial Protection Bureau, one in 10 Americans are in “persistent debt.” This means the interest and fees they are charged exceed the amount of principal they are able to repay. Thus, despite making modest payments, their credit card balance continues to rise each month. With interest rates on many credit cards near 25%, it’s going to cost you a lot of money to carry those credit card balances.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.