Inflation driving record increase in consumer credit card debt

A collection of credit cards are displayed in this illustrated photo on Wednesday, Aug. 3, 2022.

Scott G Winterton, Deseret News

U.S. credit card user balances shot up $46 billion in the second quarter of 2022, a 13% spike that’s the biggest year-over-year jump in 20 years and evidence consumers are taking on increasing debt to cope with ongoing, record-high inflation.

That according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit released Tuesday.

The analysis also pegged overall U.S. consumer debt at an all-time high of $16.2 trillion, some $2 trillion higher than at the end of 2019, before the onset of the COVID-19 pandemic.

While average hourly earnings for U.S. workers have been growing at a relatively robust pace, and are up at least 5% since this time last year, the rising costs of goods and services are easily outpacing those paycheck bumps, with inflation hitting 9.1% in June, according to the latest federal data.

An analysis released in June by LendingClub found 61% of U.S. consumers, approximately 157 million adults, were living paycheck to paycheck in April, and price increases have only escalated since then.

Consumer debt is up across the board: While the growth of credit card debt was one of the most significant upticks in the report, the Fed data shows consumer debt levels have increased in every category with the exception of overall student loan debt, which remained essentially flat.

Mortgage balances were the biggest driver of the overall increase, climbing $207 billion since the first quarter of 2022, auto loan balances rose by $33 billion and debt categorized as “other balances” in the report, which include retail cards and other consumer loans, increased by $25 billion.

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Fed analysts say the growth in each debt category reflects increases in consumer borrowing due to higher prices. Those inflationary impacts are starkly illustrated by how much more consumers must now borrow to cover the cost of an automobile or home. According to the report, the average dollar amount for those loans, at origination, are each up 36% since 2019.

And while the report notes U.S. consumers, as a whole, are currently in relatively decent financial shape, inflation-driven price increases are hitting lower wage earners the hardest.

“The second quarter of 2022 showed robust increases in mortgage, auto loan, and credit card balances, driven in part by rising prices,” Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, said in a statement. “While household balance sheets overall appear to be in a strong position, we are seeing rising delinquencies among subprime and low-income borrowers with rates approaching pre-pandemic levels.” 

Personal debt levels and more: A report released earlier this year by Credit Summit found striking differences in the levels of personal debt when parsed by a …read more

Source:: Deseret News – Utah News

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