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Federal Reserve Bank of New York Reports Record Americans’ Credit Card Debt

The indicator of the debt of residents of the United States on credit cards has reached a historical level of more than $1 trillion.

Federal Reserve Bank of New York Reports Record Americans’ Credit Card Debt

This is the case when the historical indicator has a negative value. Information on the amount of Americans’ credit card debt was published last Tuesday, August 8, by the Federal Reserve Bank of New York.

The latest quarterly report of the New York Fed indicates that in the period from April to June, credit card balances increased by $45 billion, reaching $1.03 trillion.

This report also contains information that credit card debt and car loan balances increased the total level of household debt by 1%, to $17.06 trillion. Total household debt has increased by $2.9 trillion since 2019. The report was published during a period of rising interest rates to a 22-year high.

Sofia Baig, an economist at the analytical company Morning Consult, says that the dynamics of interest rates affect ordinary consumers since this indicator varies from the federal funds rate to mortgage interest rates. As a result, according to her, the increase in interest rates contributes to the rise in the cost of debt repayment. She also noted that consumers continue to increase their debt burden, resulting in increased pressure on households with a limited budget.

Currently, the average interest rate on a credit card is almost a record 20.53%.

Credit card balances, according to the New York Fed, have shown growth over the past five quarters. This growth rate was the highest in the last 20 years.

Matt Schulz, chief credit analyst at LendingTree, says that the debt indicator will continue to grow. Separately, he noted that in this context, the main factors of influence are inflation, high-interest rates, and, in general, an increase in the cost of living.

At the same time, the labor market demonstrates stability, the economy has positive dynamics of development, and consumer spending is increasing. This favorable set of circumstances is not a positive factor affecting the financial situation of citizens, because, in combination with high inflation and rising interest rates, all of the above do not have a positive effect. The current situation is especially sensitive for those who were not among the 14 million homeowners who refinanced during the coronavirus pandemic. Then low-interest rates were fixed, and $430 billion in revenue was extracted from them.

Also on August 8, Bank of America reported an increase in the number of consumers who connect to their 401(k) accounts due to financial problems.

Matt Schulz says that a lot of data indicates a significant number of people who are doing well in terms of financial security, and their debts are in a favorable ratio with the level of expenses. But there are also serious debts that people can handle before delinquencies spike.

The New York Fed report indicates that the number of new delinquencies continues to grow from recent historical lows. Experts of this bank note that American consumers have so far coped with the economic difficulties of the pandemic and post-pandemic periods. At the same time, they note that the growth of credit card balances may become a problem for some borrowers. In their opinion, the resumption of payments on student loans this fall may create additional financial difficulties for many borrowers on these loans.

Payments on federal student loans will resume in October after a pause that lasted more than three years due to the coronavirus pandemic and the Joe Biden administration’s intention to forgive debts.

Researchers at the New York Fed said that the deployment of debt repayment programs by the presidential administration will help soften the blow for borrowers.

As we have reported earlier, Moody’s Revises Credit Ratings of Six Major US Banks.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.