Credit card debt climbs to a record $1.29 trillion, New York Fed research finds

Americans are increasingly turning to credit cards as financial pressures mount, new reports show.

Collectively, credit card balances climbed by $22 billion in the third quarter to a record $1.29 trillion, according to the Federal Reserve Bank of New York's latest household debt report, released Tuesday. Balances are up 4.2% from a year earlier.

Total household debt, including mortgages, auto loans and student loans, also expanded by $334 billion for the July-to-September period to a record $19.1 trillion.

"Overall debt has been growing," the New York Fed researchers said on a press call Tuesday. "This does reflect financial hardship out there."

One of the most expensive ways to borrow

The average credit card balance per consumer now stands at $6,678, up 2.4% year over year, a separate quarterly credit industry insights report from TransUnion found. The number of people with credit cards rose 2% to 178 million from 174.8 million.

Consumers often turn to credit cards in part because they are more accessible than other types of loans — even though the average interest rate on a new credit card offer is about 24%, according to data from LendingTree. Credit card APRs vary depending on the type of card, the issuer and the borrower's creditworthiness.

"Credit cards continue to be one of the most expensive ways to borrow," said Charlie Wise, TransUnion's senior vice president of global research and consulting.

Over time, an increasing share of new credit cards has gone to borrowers with lower incomes and credit scores, and "those accounts are now showing higher levels of distress," the New York Fed researchers said in a corresponding blog post.

Credit card issuers loosened their lending standards during the Covid pandemic, and delinquency rates rose in the years that followed, the New York Fed researchers said on the press call.

"Macroeconomic headwinds — namely high inflation and rising borrowing costs — have squeezed consumers, with inflation outpacing wage growth for low-income brackets," according to the New York Fed.

Meanwhile, the cost of living continues to climb, with Americans paying more for essentials such as groceries and gas.

Stubborn inflation has now stretched on for years, putting many households in an affordability squeeze. Costs for goods and services rose more than expected again in October, the Bureau of Labor Statistics also reported Tuesday.

"Higher prices and higher rates have pushed more people into debt," said Ted Rossman, principal consumer finance analyst at Money Management International, a nonprofit credit counseling agency.

Balances have continued to swell in the wake of the pandemic, and even though the growth rate is now slowing, "from a household finance standpoint, a lot of damage has been done," Rossman said.

The reports come on the heels of the Democrats' strong midterm results, when many voters expressed their dissatisfaction with the U.S. economy, according to Kyle Moore, chief economist at the nonpartisan think tank The Century Foundation.

"The throughline connecting so many of Tuesday's outcomes was a recognition that the American economy is failing American families," Moore said, referring to Election Day.