Genna Crites never carried a balance on her credit card.
Growing up low-income in North Carolina, she spent her childhood eating free school lunches and watching her family struggle to make ends meet. After financial aid helped Crites graduate debt-free from college in 2021, she started working full-time for a software company, saving nearly two-thirds of her income.
But things changed when she started graduate school last fall. Crites’ savings quickly dwindled. Her part-time wages at a dessert shop near campus, about $13 to $14 an hour, haven’t kept up with expenses. As high inflation pushed prices up, all the basics of her budget became a little harder to cover, and the toll added up: $70 for a tank of gas. About $700 for her share of rent and utilities, and 30 extra minutes to drive to the grocery store with cheaper discounts.
And then there were the unexpected charges: Car repairs. Space heaters. Medical bills.
“I had a really good credit score up until this point,” said Crites, 24, who now carries a balance on her card of a couple thousand dollars from month to month. It’s currently $2,500. “It’s been really scary,” she told MarketWatch.
She’s far from alone. Americans keep racking up bigger credit-card balances. In the third quarter, the country’s credit-card debt burden hit a new record high of $1.08 trillion, according to the Federal Reserve Bank of New York. That was up $154 billion from the same period in 2022, the biggest year-to-year jump since the Fed started collecting the data in 1999. Delinquencies, too, are on the rise.
As the American economy chugs ahead, will that growing debt burden threaten its faster-than-expected growth? Some experts view the bigger balances as a simple reflection of consumers’ desire to keep spending, noting that many have enough cash in the bank to cover their statements. Others say it’s a warning sign that, even in the face of robust growth and a strong labor market, some consumers are falling behind — and that household finances could quickly crumble if more Americans started to lose their jobs.
“We’re not really in a danger zone right now, but the trends are definitely not good,” said Connel Fullenkamp, an economist at Duke University. “When we’ve seen rapid increases… it’s always a warning sign that people may be taking on too much debt too fast.”
How much is too much debt?
When adjusted for inflation, current numbers indicate Americans actually owe less on their credit cards than they did a few years ago.
According to an inflation-adjusted household debt report from WalletHub — which adjusts the Fed’s numbers to remove the effect of price inflation from the data — credit-card balances are about $31 billion lower than they were in the fourth quarter of 2019.
Adjusting the Fed’s data for inflation offers a more complete picture of how current household debt data compares to historic levels — especially because the purchasing power of a dollar has shifted dramatically over the past couple of years.
Credit-card balances have been steadily growing since a sharp decline in 2020 and 2021, when many Americans used extra cash on hand during the pandemic to pay down their debts, said Odysseas Papadimitriou, the CEO of WalletHub.
And consumers still owe less on their credit cards than they do other debts, like auto and student loans. According to the study, the average American household has a credit-card balance of $9,068.
That’s compared to an average $13,405 owed on auto loans and $13,439 in student debt.
“I’m very comfortable with the credit-card debt picture,” Papadimitriou said. “We are not even at pre-pandemic levels.”
That’s in addition to other data that suggests consumers have plenty of cash to pay off their statements. WalletHub’s data also shows that credit-card balances as a proportion of a household’s total deposits — meaning the amount of cash a household has in the bank — are falling.
The debt Americans owe on the cards represented about 6% of their deposits in the third quarter, a fraction of where it’s hovered in prior decades.
Callie Cox, an investment analyst for investment platform eToro, said that ratio shows many consumers are in a good spot when it comes to paying back their credit-card balances.
“Households are well-covered from a broader standpoint,” she said. “It’s like saying my friend financed this $30,000 sports car and I’m worried that he took on too much debt — but then realizing he has $100,000 in the bank.”
A big deal for the average borrower
But the increase in delinquencies suggests that’s not the case for every consumer.
The share of newly delinquent credit-card users — those that are at least 30 days past due on one account — rose to 2% in the third quarter, up from 1.7% in the first and second quarters of 2023. That’s the highest rate since at least 2015.
Added together with the jump in the volume of credit-card debt, it’s an unsettling trend, Fullenkamp said.
“They could potentially point to future problems,” he said. “If we see debts going up today and going up so quickly, then there are people who are going to have to cut back in other places later.”
Delinquencies on credit cards don’t often pose the same kind of systemic threat to the economy as defaults on other kinds of loans, noted Matt Schulz, chief credit analyst at LendingTree. Take, for example, mortgages: a debt burden twelve times the size of American credit-card debt that can (and has) wrought havoc on the economy and global financial markets if widespread defaults occur.
That being said, credit-card debt “is certainly something to be concerned about,” Schulz added.
The job market has remained persistently strong in 2023 — but if Americans keep extending credit, Schulz said, the consequences of a future increase in unemployment could be more severe.
“It’s really all about jobs. If the job market falls apart, then all bets are off,” he said.
And while it’s unlikely that ballooning credit-card debt will bring the entire economy to its knees, he noted, that isn’t the case for many American households.
“The average person’s financial margin for error is pretty small,” Schulz said. “If they have to take their dog to the vet, or buy a new tire… that stuff matters.”
That’s certainly how it feels for Crites, who’s graduating with her master’s degree in library science this spring. She’s not yet sure how she’ll be able to keep her credit-card balance down when payments start on her nearly $200,000 worth of student loans.
“It does kill me some days, especially knowing things aren’t going to get better anytime soon,” she said. “It’s frustrating to see all of these discussions [about how] the economy’s doing great and we’re recovering and we’re seeing stock prices rise when I haven’t seen that in my life.”
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