Q4 2022 Sees a $61 Billion Increase in U.S. Credit Card Balances

What happened

U.S. credit card balances increased nearly 6.6% to $986 billion during the final quarter of 2022 as per the Federal Reserve Bank of New York. All told, consumer credit card balances rose $61 billion during the quarter, allowing total credit card debt to surpass the pre-pandemic high of $927 billion.

So what

Inflation surged in 2022, and that no doubt impacted consumers' ability to cover their bills. It's therefore not surprising to see an uptick in credit card balances.

Younger borrowers are having an even harder time coping financially. New York Fed researchers said consumers in their 20s and 30s are struggling to keep up with credit card and auto loan payments. 

"Although historically low unemployment has kept consumers' financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers' ability to repay their debts," said Wilbert van der Klaauw, economic research adviser at the New York Fed.

Now what

Carrying credit card debt is common. But now's a dangerous time to have a balance hanging over your head.

The Federal Reserve is not done with its fight against inflation. And it's likely to continue implementing interest rate hikes in 2023, some of which may err on the aggressive side to make progress on the inflation front.

Now the Fed doesn't set consumer borrowing rates directly. But when it raises its benchmark interest rate, the cost of consumer borrowing tends to rise. And that means that consumers bearing the weight of the aforementioned $986 billion in credit card debt might see the interest rate on their balances rise.

Unlike personal loans and mortgages, which commonly come with fixed borrowing rates, credit card interest rates can be variable. And in a rising interest rate environment, that could lead to costlier monthly payments. As such, those with credit card debt should do what they can to whittle their balances down as quickly as possible. 

Of course, in an age of high inflation, freeing up cash for debt payoff purposes isn't an easy thing. The good news, though, is that today's labor market is strong. Boosting their income via a higher paying job or a second job is a possibility some consumers can explore, and that could make paying off credit card debt far more feasible.