U.S. Credit Card Debt Surges 18.5% to Reach $930.6 Billion Historic High

With the combination of inflation and the Federal Reserve’s latest interest rate increase, it’s no wonder more Americans are relying on credit cards to make their daily purchases. Unfortunately, this has resulted in a record-breaking level of credit card debt, which increased further as the newest generation struggles to afford basic necessities.

Rising inflation and interest rates are a double blow for many Americans. With the latest rate hike by the Federal Reserve, credit card annual percentage rates are already close to 20% on average and are set to rise further. This, combined with the increasing cost of necessities like food and rent, is pushing more consumers to rely on credit.

As a result, total credit card debt has reached a new high of $930.6 billion, according to TransUnion’s latest quarterly report, marking an 18.5% increase from the previous year. The average balance has also risen to $5,805 over the same period.

Considering credit card rates are near 20%, if you made only the minimum payments towards this average credit card balance, it would take over 17 years to pay off the debt and cost over $8,213 in interest.

The fourth quarter saw the opening of 202 million new credit accounts, largely driven by Generation Z adults ages 18 to 25. This pushed the total number of credit cards to a record 518.4 million.

According to TransUnion, as the number of credit card accounts in the U.S. increases, a higher percentage of new customers are subprime borrowers with a credit score of 600 or lower. This is partly due to the growing number of young borrowers accessing credit cards. However, the report also found that delinquencies have risen as lenders extend credit to less experienced users. (Delinquency is defined by TransUnion as a payment that is 60 days or more overdue.)

Michele Raneri, Vice President of U.S. Research and Consulting at TransUnion, noted that the rise in delinquencies is worth watching. She stated that as long as unemployment remains low, households are better able to pay their bills. However, if unemployment increases and delinquencies spike, this could indicate a longer-term problem.

For now, the unemployment rate is at a 53-year low following a positive January jobs report.

To tackle high-interest credit card debt, Matt Schulz, Chief Credit Analyst at LendingTree, said that cardholders have options such as 0% balance transfer credit card offers. These offers are even more abundant than last year and remain a strong tool in fighting credit card debt.

Borrowers may also be able to refinance into a lower-interest personal loan. According to Schulz, though those rates have risen recently, they still average at 10%, which is much lower than current credit card rates.

“Paying off credit card debt is crucial for financial stability and wealth building,” says Andrew Latham, Director of Content at SuperMoney. “By getting a side job, selling unused items, and reducing expenses, you can free up extra funds to pay down your debt. Every dollar you pay toward your credit card debt gives you a guaranteed return equal to the card’s APR. Considering the current average credit card APR is around 23%, this is a spectacular return on your investment.”