April 14, 2024
Credit-card balances have hit historic highs. Here’s what that says about consumers’ finances.

Credit-card balances have hit historic highs. Here’s what that says about consumers’ finances.

Credit-card debt climbed to a historic high at the end of last year.

That’s according to new data from the Federal Reserve Bank of Philadelphia, which adds to earlier reports of record-smashing balances in 2022’s final quarter. 

Credit-card balances reached nearly $765 billion in the fourth quarter — up by more than $100 billion from about $648 billion during the same period in 2021, the Philadelphia Fed reported this week.

“Card performance is normalizing,” Philadelphia Fed researchers wrote in a report. “The 30-plus days past due rate is up nearly 90 basis points from a historic low in mid-2021.” 

The report is based on a respondent panel of U.S. bank holding companies, intermediate holding companies of foreign banking organizations, and covered savings and loans holding companies with at least $100 billion in total consolidated assets.

The New York Fed, meanwhile, previously reported that fourth-quarter balances totaled $986 billion in February. That report was based on a more nationally representative sample pulled from anonymized Equifax EFX, -1.36% credit data.

One theory for the rise in credit-card debt: Researchers at the New York Fed said that higher prices and rates could be making it more difficult for consumers to pay down their debts.

“Researchers said that higher prices and rates could be making it more difficult for consumers to pay down their debts.”

Soaring balances are of particular concern as credit-card rates climb to never-before-seen levels, buoyed by interest rate hikes from the Federal Reserve. The average credit card rate is currently at 20.21%, according to the most recent data from the personal-finance platform Bankrate.

More Americans reported last month that it’s getting harder to access credit and expect those conditions to grow worse, according to survey data out this week from the New York Fed.

The news may not be all grim, however. Fourth-quarter balances might have also been impacted by the holiday season, given that consumers lean heavily on credit cards during Christmas shopping, and delinquency rates remain at historic lows. Looking ahead, consumers also expect rent hikes to slow down and gas prices to decline.

Still, recent earnings results showed both higher-than-expected deposits and a boost in credit-card services and auto net revenue thanks in part to “higher net interest income in card services on higher revolving balances” at JPMorgan Chase & Co. JPM, +7.55% in the first quarter of this year.

“Consumer spending remained healthy with combined debit and credit-card sales up 10% and card loans up 21%,” JPMorgan chief executive Jamie Dimon said in a statement on the results Friday.

Credit-card utilization, the ratio of a customer’s balance to their outstanding line of credit, also marched back toward pre-pandemic levels last winter, the Philadelphia Fed reported.

When it comes to the mortgage market, though, originations dropped in the last half of 2022 as rates increased, the Philadelphia Fed said.

“The mortgage market saw an increase in lending activity for nearly two years during the pandemic,” Philadelphia Fed researchers wrote. “That trend has reversed, and new originations are well below pre-pandemic fourth quarter 2019 levels, with a pronounced decline in the second half of 2022. This trend directly correlates to an increase in interest rates following low rates during the pandemic.”

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