Record Credit Card Debt and Rising Interest Rates: What You Need to Know

The latest report from TransUnion showed that Americans racked up a record $930.6 billion in credit card debt in the fourth quarter of 2022, a whopping 18.5% increase from the same period one year ago.^[0] This surge in debt was accompanied by a rise in the average credit card balance, which now stands at $5,805.^[1]

Michele Raneri, TransUnion’s vice president of U.S. research and consulting, attributes this debt increase to the high inflation rates and interest rate hikes implemented by the Federal Reserve.^[2]

“Whether it’s shopping for a new car or buying eggs in the grocery store, consumers continue to be impacted in ways big and small by both high inflation and the interest rate hikes implemented by the Federal Reserve,” Raneri said.^[3]

Furthermore, 202 million new credit accounts were opened in the fourth quarter of 2022, with a majority of these customers falling into the subprime category.^[0] This means that more people are turning to credit cards to finance their everyday purchases, but with the average interest rate on credit cards nearing 20%, consumers should be mindful of their payments to avoid costly interest charges.^[4]

This debt increase is evidenced by the latest Federal Reserve report which shows that US consumer credit for December 2022 came in at $11.56 billion, much lower than the expected $25 billion.^[5] Revolving credit, which is mostly credit cards, increased at a 7.3% annual rate in December, the smallest increase in a year and a half.^[6] Non-revolving credit, on the other hand, rose at a 1.5% pace, the smallest increase since the early stages of the pandemic in 2020.^[7]

With rising inflation and interest rates, Americans should be mindful of their credit card usage and payments. They should consider a 0% introductory balance transfer card, a personal loan, or other debt repayment strategies if they can’t keep up with their payments.^[2] Paying more than the minimum can also help reduce the amount of interest they’ll have to pay.^[2]

0. “US Credit Card Debt Jumps 18.5% to $930.6 Billion” Newsmax, 3 Feb. 2023, https://www.newsmax.com/finance/streettalk/credit-card-debt-interest-rates-inflation/2023/02/03/id/1107223/

1. “Americans Are Drowning In Credit Card Debt Thanks To Rising Interest Rates” The Deep Dive, 4 Feb. 2023, https://thedeepdive.ca/americans-are-drowning-in-credit-card-debt-thanks-to-rising-interest-rates/

2. “What Is the Average Credit Card Debt in the US?” CNET, 3 Feb. 2023, https://www.cnet.com/personal-finance/credit-cards/average-american-credit-card-debt

3. “Americans progressively convert to credit cards to deal with…” MENAFN.COM, 6 Feb. 2023, https://menafn.com/1105528722/Americans-progressively-convert-to-credit-cards-to-deal-with-peak-inflation

4. “U.S. credit card debt jumps 18.5% and hits a record $930.6 billion” CNBC, 3 Feb. 2023, https://www.cnbc.com/2023/02/03/us-credit-card-debt-jumps-18point5percent-and-hits-a-record-930point6-billion-.html

5. “Americans are becoming ‘reluctant' to make larger purchases, new Fed report shows” CNN, 7 Feb. 2023, https://www.cnn.com/2023/02/07/economy/consumer-credit-report-december/index.html

6. “U.S. consumer credit grows at slowest pace in two years in sign of economic worries” msnNOW, 7 Feb. 2023, https://www.msn.com/en-us/money/markets/consumer-credit-grows-at-slowest-pace-in-two-years-in-sign-of-economic-worries/ar-AA17dnVP

7. “US consumer credit for December was $11.56 billion versus $25 billion estimate” ForexLive, 7 Feb. 2023, https://www.forexlive.com/news/us-consumer-credit-for-december-was-1156-billion-versus-25-billion-estimate-20230207/