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Americans added $266 billion to their debts in this year’s first quarter, with credit card balances rising and mortgage debt climbing, bringing total household debt to $15.84 trillion, according to 10 May data from the Federal Reserve Bank of New York.
That total debt is $1.7 trillion higher than the last quarter of 2019, just before the COVID virus arrived.
Credit card balances rose to $841 billion for the period, year over year, according to the New York Fed.
Consumers paid off about $83 billion in plastic debt during the COVID War; after lockdowns ended, U.S. consumers vented their pent-up demand in a spending spree that still continues, despite rising prices and a shortage of goods.
Balances edged down from the end of December’s holiday spending season, but are likely to keep rising because of inflation and higher interest rates, the bank’s analysts predicted.
“There’s a good chance that Americans’ total credit card balances will soon reach a new record high, marking a sharp reversal from the precipitous drop that occurred in 2020 and early 2021,” Ted Rossman, an analyst at CreditCards.com, told CNBC.
During the quarter, as many as 537 million new credit card accounts were opened, year over year, about 1.6 new cards for every person in the country.
Other estimates place the number of new cards issued as low as 229 million.
Either figure bests the 81-million average that prevailed before the COVID era.
The new cards brought the total of Americans available credit card debt to $3.28 trillion, Bloomberg reported.
Most credit cards carry a variable interest rate, according to CNBC, with rates now averaging above 16 percent. However, the average may reach 18 percent by 2023 as the Fed continues to raise its key rate, Rossman warned.
Mortgage debt grew by $250 billion during the quarter, with higher home prices forcing buyers to borrow more at a time when interest rates are rising, as we detailed in “Mortgage Rates Climb to Highest Since 2011” (5 Apr 2022) and “Home Prices Set Yet Another Record While Sales Fall” (26 April, 2022), among other stories.
One reason Americans are willing to sink deeper into debt is “households are in very good shape in terms of their net wealth,” the Fed’s researchers said in a press briefing.
“Most of the outstanding debt…was originated to high-credit-score borrowers,” they noted.
Also, the bank’s survey of consumers found a decline in worries about missing payments, especially among low-income households.
The average U.S. household sees its income rising 3.1 percent this year, the survey reported.
Still, “with rampant inflation and rising interest rates, things are going to get worse before they get better,” Matt Schulz, LendingTree’s chief credit analyst, told CNBC.
TREND FORECAST: Since inflation is outpacing wage increases, while incomes may rise this year, actual purchasing power will not. It will continue to be eroded by inflation for several months, leaving workers earning more but being less well off. As we thoroughly note in this and previous Trends Journals, the cost of living will indeed get a lot worse before it gets a little better.