Credit Card Losses

Unbelievable Surge! Credit Card Losses Skyrocket at Record Speed – Faster Than the Great Financial Crisis!

Credit card companies are experiencing their highest rate of losses in nearly three decades, excluding the period of the Great Financial Crisis.

Credit card losses reached their lowest point in September 2021. Although the initial uptick may have resulted from stimulus reversals, they have increased consistently and rapidly since the first quarter of 2022. This escalating rate of losses has only been comparable to the recent history observed during the 2008 recession.

Key Points

• Credit card companies are facing their highest loss rate in nearly three decades, surpassing the Great Financial Crisis.
• As of the first quarter of 2023, the average credit card debt for the typical American has risen by 13% from the previous year, reaching $5,910. This marks the first year-over-year increase since at least 2019.
• In the third quarter of 2023, Americans’ credit card debt exceeded $1.079 trillion, breaking the previous record set in the second quarter of 2023. This is the second consecutive quarter where credit card balances have exceeded $1 trillion.
• Credit card balances have surged by $223 billion since the fourth quarter of 2021, now $152 billion higher than the previous record set in the fourth quarter of 2019. Anticipated factors contributing to further increases include record interest rates, persistent inflation, and various economic factors.
• Alaska holds the highest average credit card debt among states at $7,338, while Wisconsin and Iowa have the smallest average balances at $4,808 and $4,811, respectively.
• The average Annual Percentage Rate (APR) on interest-bearing credit card accounts stands at 20.92% as of the first quarter of 2023, showing a notable increase since 2021 due to successive hikes in interest rates by the Federal Reserve.

How Much Credit Card Debt Do Americans Owe?

In the third quarter of 2023, Americans’ total credit card debt reached $1.079 trillion, as reported by the latest Federal Reserve Bank of New York data. This surpasses the previous record of $1.031 trillion in the second quarter of 2023, marking the highest balance since tracking began in 1999.

This is the second consecutive quarter where Americans’ credit card balances have exceeded $1 trillion, a milestone not reached before the second quarter of 2023. It also follows a pattern of third-quarter increases in credit card debt, except in 2020 during the COVID-19 pandemic. Before 2011, credit card debt hadn’t decreased in the third quarter of a year since 2011, marking the end of 11 straight quarters (from Q1 2009 through Q3 2011) with a drop in credit card debt as the nation grappled with the repercussions of the Great Recession.

With the recent uptick, credit card balances have surged by $223 billion since the fourth quarter of 2021. Americans’ credit card debt is now $152 billion higher than the previous record set in the fourth quarter of 2019 when balances stood at $927 billion. However, due to record interest rates, persistent inflation, and various economic factors, it’s anticipated that credit card balances will likely continue to rise, at least shortly.

These current record balances are significantly higher than the $478 billion observed over two decades ago in the first quarter of 1999.

Data source: Federal Reserve Bank (2023)

Average Credit Card Debt by State

Alaska holds the highest average credit card debt among states at $7,338, while Wisconsin and Iowa have the smallest average balances at $4,808 and $4,811, respectively. Credit card debt figures exhibit significant variations across states. Here is a comprehensive list of each state’s average credit card balance as of 2021.

States with the Highest Credit Card Debt

Alaska, Washington, D.C., and Connecticut have consistently exhibited the highest average credit card debt for at least two years. New Jersey and Maryland complete the top five roster in this regard.

States with the Lowest Credit Card Debt

Wisconsin, Iowa, and Kentucky have maintained the lowest average credit card debt for at least two years. These states, alongside Mississippi and West Virginia, collectively represent the five states with the lowest average credit card debt.

Average Credit Card Interest Rates

As of the first quarter of 2023, the average Annual Percentage Rate (APR) on interest-bearing credit card accounts stands at 20.92%. This notable increase in credit card interest rates since 2021 can be attributed to the Federal Reserve’s successive hikes in interest rates. It’s important to note that interest-bearing accounts encompass all credit cards that impose interest charges, excluding those with a 0% introductory APR, which only come into consideration once the initial period concludes.

Data source: Board of Governors of the Federal Reserve System (2023)

Credit Card Debt Averaged Across Different Income Levels

Americans in higher income brackets tend to carry elevated credit card balances on average. Interestingly, the middle and upper-middle classes are more likely to have credit card debt. Among those falling within the 60th through 79th income percentiles, 54% maintain credit card debt, while in the 40th through 59th income percentile, 57% carry a balance on their cards.

Contrastingly, individuals in the highest (90th to 100th) and lowest (under 20th) income percentiles are less prone to carrying credit card balances. Only a third of Americans in the lowest income percentile have credit card debt, while a quarter of those in the highest income percentile bear such obligation.

Data Source: Federal Reserve Survey of Consumer Finances (2023)

Average Credit Card Debt by Race

White Americans carry the highest average credit card debt, totaling $6,930, and possess a median credit card balance of $3,000, surpassing all other racial and ethnic groups.

In contrast, Hispanic Americans exhibit the lowest average credit card debt at $4,150, sharing the most insufficient median credit card balance of $1,700 with Black Americans.

Data Source: Federal Reserve Survey of Consumer Finances (2023)

Average Credit Card Debt by Age

Generation X holds the distinction of carrying the highest average credit card balance, amounting to $7,236, surpassing baby boomers, who rank second with an average balance of $6,230 by over $1,000.

Conversely, Generation Z claims the lowest average credit card debt by age, at $2,312. This lower average can be attributed, in part, to the fact that young adults typically have lower average incomes, which, in turn, contributes to a comparatively lower average credit limit, aiding in the avoidance of credit card debt.

Data Source: Experian (2023)

Recent Trends in Credit Card Debt

Credit card debt has surged to $1.03 trillion in the United States. Over seven out of ten quarters, from the first quarter of 2021 to the second quarter of 2023, witnessed an increase in credit card debt, now constituting over 6% of the total debt held by Americans—reaching a level not seen since the first quarter of 2020.

Despite this, credit card delinquency rates experienced a decline in 2022, possibly influenced by the upward trend in interest rates dissuading Americans from falling behind on their payments.

While credit card debt continued to rise in 2022, the average FICO® Score held steady at its peak of 714. A significant majority of Americans, 64%, maintain a FICO® Score of 700 or higher, comfortably in the “good” score range.

The credit card utilization rate increased from 25.6% to 28% between 2021 and 2022. However, this uptick is not currently a cause for concern, given the simultaneous decrease in delinquency rates during the same period.

The full-year data for 2023 will provide insights into the extent to which Americans relied on their credit cards to navigate inflation, even as it shows signs of receding.

These trends are encouraging, particularly in light of the impact of inflation on consumer finances. Despite elevated costs for goods and services, consumers, at least for now, have not significantly increased their reliance on credit cards. This stands in contrast to other forms of debt, as most have experienced an uptick.

Data source: Federal Reserve (2023)

Cafecredit Methodology

The Cafecredit methodology comprehensively examines credit card debt trends in the United States, drawing from reputable sources such as Experian, the Federal Reserve Board, and the Federal Reserve Bank of New York. The report spans multiple quarters, offering a detailed analysis from the first quarter of 2021 to the second quarter of 2023, shedding light on the evolution of credit card debt. Yearly average credit card debt figures from 2019 to 2023 are sourced from Experian, providing insights into the changing landscape of credit card obligations.

The total credit card debt data for the third quarter of 2023 is derived from the latest information provided by the Federal Reserve Bank of New York, offering a comprehensive view of the overall scale of credit card debt. Additionally, the report tracks the average Annual Percentage Rate (APR) on interest-bearing credit card accounts from the first quarter of 2018 to the first quarter of 2023, elucidating the impact of interest rate fluctuations on credit card debt dynamics.

Sources

1. Experian (2023). “Average Credit Card Balances up 13.2% to $5,910 in 2022.”
2. Experian (2023). “Credit Scores Steady as Consumer Debt Balances Rise in 2022.”
3. Board of Governors of the Federal Reserve System (2023). “Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest-Federal Funds Effective Rate.”
4. Federal Reserve Bank of New York (2023). “Quarterly Report on Household Debt and Credit.”
5. Federal Reserve Survey of Consumer Finances (2023). “2022 Survey of Consumer Finances (SCF).”