Credit card debt fell in the wake of the pandemic, when many people lost their jobs and received cash infusions.
It’s back, two years later.
According to the Federal Reserve Bank of New York’s quarterly credit and household debt report, credit card debt rose 15% year-over-year — the highest one year increase in over two decades. The total amount of $930 billion is close to pre-pandemic levels.
One group of consumers, however, has seen its average debt increase surpass that of December 2019, prior to the pandemic. These are those who live in low-income areas. Consumers who live in high income areas have an average balance of $300 less than December 2019.
Credit card debt has been on the rise all year according to the New York Fed. Its researchers attribute the increase to a few things:
People are not putting off purchasing “services”, such as vacations or travel.
Inflation causes higher prices for goods and services.
People don’t seem to be slowing down their consumption of goods or services despite inflation.
New York Fed researchers predict that credit card debt will rise as it does during the holiday season.
While Debt has risen, delinquencies have fallen
According to the report by New York Fed, debt is now higher than it was before the pandemic. The debt rose by $351 billion or 2.2% in the third quarter 2022, and is now $2.36 trillion more than at the end 2019.
This is good news for lenders, but less for consumers. The report showed that consumers can unite around a lack of significant increases in delinquencies. These numbers are still below historical trends. The New York Fed researchers largely attribute this to the fact that some borrowers still have excess savings. However, the percentage of consumers who have debts in collections is still lower than it was before the pandemic.
According to the New York Fed’s findings, This is what’s happening with all types of debt:
71% of household debt is owed to mortgages, compared to 69% in 2019. According to New York Fed researchers, the housing refinance boom is over due to rising interest rates. What is left is buying. The pace of new mortgage originations has slowed to pre-pandemic levels. The total mortgage debt stands at $11.67 trillion.
The balances of student loans, which are mainly federal loans and have been paused from March 2020, saw a slight decline likely due to loan forgiveness programs like Public Service Loan Forgiveness. Next year, the pause will be lifted. Total student debt stands at $1.57 trillion.
The third quarter saw an increase in auto loan balances, continuing a steady 11-year upward trend. However, the number of originations, i.e. cars being purchased, has declined since the previous quarter. According to New York Fed researchers, those in financial trouble likely purchased a car in the last year and would have paid more than they did in previous years. The most troublesome are the 18- to 29-year-old borrowers. The total amount of auto loan debt stands at $1.52 trillion.
After years of declining balances, the HELOC (home equity line of credit) balances rose for the second consecutive quarter. The total HELOC debt stands at $322 billion.