Credit-card balances saw their biggest annual increase in more than 20 years in the third quarter, rising 15% from a year ago to reach $930 billion as Americans tried to manage a higher cost of living, according to data from the Federal Reserve Bank of New York released Tuesday.
Total household debt also notched its largest nominal quarterly jump since 2007, rising by $351 billion thanks in part to a $282 billion hike in mortgage balances in the third quarter, the New York Fed said in its latest quarterly report on household debt and credit. Credit-card debt also contributed plenty, due to the $38 billion increase in balances from the quarter prior, the report added.
“With prices more than 8% higher than they were a year ago, it is perhaps unsurprising that balances are increasing,” a group of New York Fed researchers said in a blog post Tuesday. “Notably, credit-card balances have grown at nearly double that rate since last year. The real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards.”
To that end, delinquency rates have also begun to rise, but remain low compared to historical trends, Fed researchers said.
Credit-card balances have logged a rapid increase in 2022 after dropping earlier in the pandemic, when the federal government injected trillions of dollars into the economy via two stimulus packages that sent consumers stimulus checks, boosted unemployment benefits, and expanded the child-tax credit. Those programs helped increase financial security, slash poverty rates, and bring about huge declines in credit-card balances.
But those benefits have long since ended: the last stimulus check went out in March 2021, extra unemployment benefits withered in September 2021, and the enhanced tax credit that provided parents with up to $300 a month per child each month ran out that December.
As for other forms of debt, auto loan balances increased by $22 billion to $1.52 trillion in the third quarter, and mortgage balances jumped by $282 billion to $11.67 trillion. Student-loan balances fell by $15 billion to $1.57 trillion, while mortgage originations, which include refinances, fell by $126 billion to $633 billion.
“Credit-card, mortgage, and auto loan balances continued to increase in the third quarter of 2022 reflecting a combination of robust consumer demand and higher prices,” Donghoon Lee, economic research advisor at the New York Fed, said in a statement. “However, new mortgage originations have slowed to pre-pandemic levels amid rising interest rates.”
The fourth quarter will likely continue to bring higher credit-card balances due to seasonal patterns and holiday shopping, New York Fed researchers said on a press call on Tuesday. Credit-card balances tend to decline in the first quarter, however, as seen in the first quarter of this year.