$1 Trillion in Credit Card Debt: What's the Real Picture?Aug 11, 2023
For the first time, Americans have hit a whopping $1 trillion in credit card debt! 🤯 Let's break this down.
Breaking Down The Billion-Dollar Numbers
According to new findings from the Federal Reserve Bank of New York, the outstanding credit balances escalated to $1.03 trillion in the second quarter, marking an increase of 4.6% from the first quarter's $986 billion. While this might initially sound alarming, let’s get some perspective.
More Americans have leaned into their credit cards over the past year, but the good news is that many have so far handled this growing debt effectively. Notably, with banks getting stricter on lending to riskier borrowers, it seems like a chunk of this debt is in safer hands.
The Context Matters
NY Fed researchers pointed out that even with challenges such as higher interest rates, post-pandemic inflation, and recent bank issues, American consumers are not showing signs of widespread financial distress. Quite reassuring, right?
But, There's A But...
While the above might sound positive, there are some nuances to consider:
- Delinquency Rates: Although they are "unusually low" thanks to the pandemic-driven government support, there’s been a 0.7% uptick for credit cards, making it the highest among all debt categories in the study.
- Younger Generations: Our young pals aged 18-29 had the highest delinquency rates in the second quarter, with 8.8% being over 90 days late on their payments. These rates were slightly less for the 30-39 age group and much lower for those above 40.
Tougher Times for Subprime Borrowers
While folks with a high risk of default saw an increase in card issuance in 2021 and 2022, the trend plateaued in the first half of 2023. Those with superior credit scores, however, continued to benefit.
U.S. banks have further tightened their lending grip this year, given the looming recession and persistent inflation fears. As a result, there was a significant spike in credit card application rejection rates, hitting 21.8% in June. This tightening belt especially affected those with credit scores below 680.
The remainder of 2023 might be even more challenging for subprime borrowers. Banks expect to continue making their lending standards stricter, primarily driven by economic uncertainties and anticipated deterioration in loan credit quality.
So, while $1 trillion is a big number, it's essential to understand the underlying trends and contexts. Keep a vigilant eye on your financial health, understand your credit score, and as always, be smart with your borrowing!
Until next time, keep those credit scores shining! ✌️
Stay informed and stay financially savvy!
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