We’re nearly six months into 2023. If you’re still struggling to pay off the credit card debt you incurred over the 2022 Winter Holiday Season, you are not alone. A May 2023 report from the Federal Reserve Bank of New York found that total U.S. household debt topped $17 trillion in the first quarter of 2023.
The Quarterly Report on Household Debt and Credit released by the Federal Reserve Bank of New York’s Center for Microeconomic Data found that total household debt increased by $148 billion (0.9 percent) from Q4 2022 to Q1 2023, reaching a record high of $17.05 trillion. This means outstanding debt balances are $2.9 trillion higher now than at the end of 2019, before the pandemic recession.
The report, which is based on data from the New York Fed’s nationally representative Consumer Credit Panel, also found that delinquencies increased across all debt types.
While total outstanding credit card debt remained flat in the first quarter at $986 billion, the same as it was in Q4 2022, economists and financial educators note that this is actually a troubling sign. This is because consumers typically spend the first few months of the New Year paying off the credit card debt they incurred over the Winter holidays. But in 2023, that hasn’t been the case. In fact, this is the first time since 2001 that credit card debt didn’t decrease in the first quarter, according to the New York Fed.
There are two other times credit card debt didn’t fall in the first quarter of the year since the New York Fed report began, in 2000 and 2001. But every year since, card debt fell at least a little bit — until this year. The New York Fed report warned that the lack of a decrease may not bode well for Americans’ credit card debt numbers for the rest of the year.
Thanks to rising interest rates, inflation, and a myriad of other economic factors, it’s likely just a matter of time before credit card balances surpass $1 trillion for the first time since the New York Fed began tracking, the report found.
Another concerning finding was that balances on retail cards and other consumer loans increased by $5 billion during the first quarter of 2023, further indicating that the average person is relying on credit to cover their daily expenses, which in fairness, are also at record highs thanks to inflation and rising interest rates.
The report does not fully reflect the total outstanding debt loads consumers are facing, New York Fed researchers noted, sharing that Buy Now, Pay Later installment loans were not included or factored into these numbers.
Outstanding Consumer Debt Reaches Record High $17.05 Trillion
While credit card balances didn’t decline or increase in Q1 2023, credit card balances have dramatically increased since the fourth quarter of 2021, rising by $130 billion. Americans’ total outstanding credit card debt is also at a record high, $59 billion higher than the previous record set in the fourth quarter of 2019 when balances stood at $927 billion.
“The fact that [outstanding credit card debt] didn’t fall in Q1 this year doesn’t bode well for the rest of the year,” said Matt Schulz, chief credit analyst at LendingTree. Schulz pointed to inflation, spending increases since the pandemic, and typical consumer behavior as the primary culprits for the increased debt load. He added that consumers continuing to swipe their credit cards could indicate either confidence in the economy or that consumers are struggling to get by.
“Except in times of economic catastrophe, like the onset of the pandemic or the Great Recession, credit card debt just continues to grow,” Schulz said. “Those two events are the only times in decades in which we have seen a meaningful decrease in credit card debt.”
While Schulz opined that it’s possible the increase in spending is due to consumer confidence in the economy, not everyone agrees.
“I think [the report] reflects more people using credit cards to finance day-to-day necessities (although there’s also an element of people using less cash and more people using cards for convenience and rewards and paying them off right away),” said Ted Rossman, senior industry analyst for Bankrate.
Rossman noted that Bankrate research found that 46 percent of credit cardholders carry debt month to month in 2023, with 54 percent paying their balances in full. Last year, 39 percent of credit cardholders carried debt month to month.
While credit card debt remained stagnant at $986 billion, almost every other consumer debt category saw an increase in outstanding debt.
- Mortgage balances rose by $121 billion in the first quarter of 2023 to $12.04 trillion
- Auto Loan balances increased by $10 billion in the first quarter of 2023 to $1.56 trillion
- Student Loan balances slightly increased by $9 billion to $1.60 trillion
- Retail Cards and other Consumer Loans increased by $5 billion to $510 billion
Not only is consumer debt rising rapidly, but the number of delinquent payments are also on the rise.
Delinquent payments occur when a payment is not made on or ahead of the due date. Not only is delinquency on the rise, but serious delinquency, when a debt is 90+ days past due, is also up.
According to the New York Fed’s report, the delinquency rate among the number of people who fell 30+ days behind on credit card payments increased, and 4.57 percent of credit card debt transitioned to serious delinquency in the first quarter of 2023, up from 3.04 percent in Q1 of 2022. Credit cardholders aged 18–29 had the biggest increase in serious delinquency, with 8.3 percent of balances in serious delinquency.
It wasn’t just credit cards that saw an increase in delinquent payments.
Auto loan delinquencies are higher than they were before the pandemic for those under 40. The average monthly car payment has also increased to $729.
“For some people, a car payment might be rivaling a rent payment; but then again, [rent] has gone up so much that I think it’s that cumulative effect,” Rossman said. “Higher prices on a lot of things, higher interest rates: I feel those trends are colliding in a negative way, unfortunately, for a lot of households.”
Student loan debt saw a slight decrease in the rate of serious delinquency, which went down to less than 1 percent —but that’s likely because student loan repayment is paused for now.
When student loan repayment resumes, it could make it even more difficult for consumers to make on-time payments and pay off other forms of debt, such as credit cards.
“There’s never a great time to carry debt, but it’s even worse when there’s a lot of uncertainty,” Schulz said.
Tips for Paying Off Credit Card Debt
Credit card debt is a type of high-interest revolving debt, meaning consumers can continue to borrow each month up to a certain limit. Credit cards can be a useful safety net during an unexpected financial emergency. But if used irresponsibly, credit card debt can lead to a dangerous spiral of overspending, late payment fees, and interest hikes that can turn your debt from manageable to overwhelming.
Seeing your credit card balances grow every month can also make you feel hopeless. Even if you know best practices when it comes to using credit cards, the truth is credit card debt can sometimes creep up on you. Remember, you have the power to get your debt under control, and that it is perfectly acceptable to ask for help.
“For the foreseeable future, we’re stuck with high credit card rates, high balances, and more people carrying debt,” Rossman said. “My advice would be to pay down credit card debt, as quickly and cost-effectively as possible. I know it may be easier said than done, but … Chances are, if you have credit card debt, this is your highest interest rate by a wide margin, so I really think that needs to be a priority.”
Here are six ideas for getting a handle on your high-interest credit card debt:
1. Stick to a Budget
Avoid making credit card purchases you know you can’t pay off in full at the end of the month. In other words, use a credit card like a debit card. If you’re on a debt payoff journey, make sure to include at least the minimum payment on your debt to your budget as if it was a necessary bill to pay. If possible, stop using credit cards with debt so that you stop adding to the amount owed.
2. Pay More than the Minimum Payment
If you’re only making the minimum payment toward your credit card debt, it will take a long time to see any progress toward reducing the balance. Try increasing your payments beyond the minimum, even if it’s an extra $50 per month. You’ll not only see your balance go down faster, but you’ll also save a ton on interest.
3. Establish and Fund an Emergency Savings Account
Don’t wait for a financial emergency to happen, set aside money today for a rainy tomorrow.
A February 2023 report from Bankrate found most Americans do not have a well-funded emergency savings account, with 56 percent of Americans reporting they are unable to cover an unexpected $1,000 bill with money from their savings. The average cost of an emergency expense? $1,400.
Another shocking finding from Bankrate’s report? More than one-third, 36 percent, of people reported they have more credit card debt than they have in their emergency savings accounts. Further analysis of the data found that when it comes to consumers who are working full-time (ages 27-58), more than 4 in 10 reported they have more credit card debt than short-term savings.
4. Prioritize Paying Off Debt with the Highest Interest Rates
If you have multiple credit cards or types of debt you’re working to pay off, focus your efforts on paying down the balance with the highest interest rate first. Known as the “debt avalanche,” this strategy helps you save money and open up more cash flow by getting rid of your most expensive debts first. Once that debt is paid off, apply the majority of your debt payoff payments to the credit card with the second highest interest rate and keep going until all debts are paid off.
5. Ask Your Creditor About Financial Hardship Programs
If you’re falling behind on debt payments, contact your creditor and let them know you’re struggling, especially if you’ve recently been laid off or have experienced a similar financial hardship. They may be able to temporarily alter the terms of your credit card or loan, such as lowering the interest rate or deferring payments so that you can get back on your feet.
6. Meet with a Nonprofit Credit Counselor
If you feel like you’re in over your head with debt and your creditor isn’t willing or able to lower your interest rates, consider contacting a non-profit credit counseling agency like DebtWave Credit Counseling. An accredited credit counselor will help you get organized and come up with a strategy for paying off your debt. They may even suggest you enroll in an in-house Debt Management Plan (DMP), which involves renegotiating your debts with creditors and making reduced payments over a set period of time.
Learn more about DebtWave’s credit counseling and debt management services and schedule a complimentary budget analysis with one of our certified credit counselors here.