Americans are increasingly turning to their credit cards to cover everyday expenses, with debt hitting a new record high at the end of June, according to a New York Federal Reserve report published Tuesday.
In the three-month period from April to June, total credit card debt rose to $1.14 trillion, an increase of $27 billion, or about 1%, from the previous quarter, according to the report. It marks the highest level on record in Fed data dating back to 2003.
Credit card delinquencies continued to rise from their pre-pandemic levels in the second quarter. As of June, about 9.1% of outstanding credit card debt was in some stage of delinquency, up from 8.5% the previous quarter.
The rise in credit card usage and debt is particularly concerning because interest rates are astronomically high right now. The average credit card annual percentage rate (APR) hit a new record of 20.73% last week, according to a Bankrate database that goes back to 1985. The previous record was 19% in July 1991.
If people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if someone owes $5,000 in debt – which the average American does – current APR levels would mean it would take about 279 months and $8,124 in interest to pay off the debt making the minimum payments.
As of June, about 3.2% of total debt was in some stage of delinquency, unchanged from the previous quarter. About 136,000 consumers had a bankruptcy notation added to their credit reports, an increase from the previous quarter. Despite the uptick, researchers said new bankruptcies remain at low levels.
The increase in the credit card category helped to push total household debt to a staggering $17.8 trillion, a $109 billion – or 0.6% – increase from the end of March.
Auto loan balances also contributed to the uptick, climbing by $10 billion over the course of the fourth quarter to $1.62 trillion. Mortgage balances, meanwhile, jumped by $77 billion to $12.51 trillion. Student loan debt fell by $10 billion; missed federal student loan payments will not be reported to credit bureaus until the end of 2024.
The rise in balances comes in the wake of the Federal Reserve's aggressive interest rate-hike campaign designed to crush stubborn inflation and cool the economy.
Although inflation has cooled considerably in recent months, it remains up 3% compared with the same time one year ago, according to the most recent Labor Department data.
The inflation spike has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.
This article originally appeared on Fox Business.
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