Is American purchasing power at risk? Credit card debt hits new high, delinquency rates climb

According to data from the New York Federal Reserve, U.S. credit card debt reached nearly $1 trillion in the fourth quarter of last year, up $61 billion from the previous quarter, the largest quarterly increase since 1999. And the annual growth reached $130 billion, setting a record.

Why credit card debt is rising

The first is inflation. Higher prices mean consumers pay more for the same products, and while inflation began to cool in late 2022, prices were still up 6.5% year-on-year in December, according to the Consumer Price Index.

The second is higher interest rates. The Federal Reserve's continued rate hikes have caused credit card interest rates to rise. According to the Federal Reserve, the average annual interest rate for all credit card accounts was 19.07% in the fourth quarter, compared with 14.51% in the same quarter a year ago.

Then there is the longer time for credit card arrears and the increase in compound interest. It is reported that the time for American consumers to owe credit cards is increasing, which may be related to consumers' tight financial situation. According to a survey by CreditCards.com in October, 60% of American respondents have credit card debts for more than a year, compared with only 50% a year ago.

Finally, there is the increase in credit card usage during the holiday season. During the holiday season, many consumers use credit cards to buy gifts, and last year's holiday sales in the United States reached $1.297 trillion.

Delinquency rates are increasing, and Americans' purchasing power may be at risk

The share of Discover loans that were more than 30 days delinquent hit 2.67% in January, compared with 1.75% a year earlier, according to filings with the Securities and Exchange Commission. Bank of America and JPMorgan Chase reported similar increases.

Many card issuers have begun preparing for the worst-case scenario. American Express and Capital One, for example, have set aside reserves in case consumers can’t repay their loans.

The increase in debt may be temporary, but the increase in delinquencies and charge-offs could be an early sign that some consumers are feeling the financial strain. The good news is that delinquency and charge-off rates are still below pre-pandemic levels.

Editor✎ Ashley/

Disclaimer: This article is copyrighted and may not be reproduced without permission.