Consumer spending remains strong as a mountain of credit card debt continues to pile up, with Americans increasingly turning to plastic to fund their purchases. According to the Federal Reserve Bank of New York, credit card debt reached $1.14T in Q2, up 5.8% from a year earlier, or about $6,500 per person. While the steadily rising figure took a break during the pandemic years, it has soared since 2022 as many consumers swipe away to counter their dwindling purchasing power.
Driving the spike: While inflation growth has come down from record highs, price tags on nearly every item are still elevated compared to where they were several years ago. That has made portions of the population reliant on credit cards to finance purchases of everyday goods and services, increasing non-discretionary balances and making it more challenging to pay down debt. A resumption of student loan repayments has also contributed to the increase, especially for millennials and Gen Z, while others may be having a harder time paring back their lifestyles despite the price pressures.
Interest rates haven't made the issue any better, with the average annual percentage rate now over 20%, making it a really costly debt for consumers. It's also higher than any point since the Fed started tracking card APRs in 1994, contributing to the overall U.S. household debt that topped $17.8T in Q2. Meanwhile, credit card delinquency rates are on the rise, with 9.1% of credit card balances transitioning into delinquency as of June, up from 8.5% the previous quarter.
What's next? While markets grew fearful after the latest employment figures on Friday, a recession has not appeared yet, in part due to strong consumer spending. Swiping plastic could keep up if the Fed starts cutting rates, starting with an easing cycle that's likely to begin at the next FOMC meeting in September. The Biden administration is also trying to help out the sector by capping credit card late fees, but a recent stay on the CFPB ruling could mean a win for Bread Financial (BFH), Synchrony Financial (SYF) and Capital One (COF). Also check out the latest SA analysis on other credit card giants.
Consumer spending remains strong as a mountain of credit card debt continues to pile up, with Americans increasingly turning to plastic to fund their purchases. According to the Federal Reserve Bank of New York, credit card debt reached $1.14T in Q2, up 5.8% from a year earlier, or about $6,500 per person. While the steadily rising figure took a break during the pandemic years, it has soared since 2022 as many consumers swipe away to counter their dwindling purchasing power.
Driving the spike: While inflation growth has come down from record highs, price tags on nearly every item are still elevated compared to where they were several years ago. That has made portions of the population reliant on credit cards to finance purchases of everyday goods and services, increasing non-discretionary balances and making it more challenging to pay down debt. A resumption of student loan repayments has also contributed to the increase, especially for millennials and Gen Z, while others may be having a harder time paring back their lifestyles despite the price pressures.
Interest rates haven't made the issue any better, with the average annual percentage rate now over 20%, making it a really costly debt for consumers. It's also higher than any point since the Fed started tracking card APRs in 1994, contributing to the overall U.S. household debt that topped $17.8T in Q2. Meanwhile, credit card delinquency rates are on the rise, with 9.1% of credit card balances transitioning into delinquency as of June, up from 8.5% the previous quarter.
What's next? While markets grew fearful after the latest employment figures on Friday, a recession has not appeared yet, in part due to strong consumer spending. Swiping plastic could keep up if the Fed starts cutting rates, starting with an easing cycle that's likely to begin at the next FOMC meeting in September. The Biden administration is also trying to help out the sector by capping credit card late fees, but a recent stay on the CFPB ruling could mean a win for Bread Financial (BFH), Synchrony Financial (SYF) and Capital One (COF). Also check out the latest SA analysis on other credit card giants.