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Credit card debt took a nosedive in the early days of the pandemic in 2020 as consumers stayed home, lost work and received cash infusions from the government.
Two years later, it’s back.
Credit card debt increased 15% year over year — the largest one-year increase in more than two decades, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit released today. Its total of $930 billion is near pre-pandemic levels.
The report found one group of consumers has surpassed its debt average since December 2019, before the pandemic: those in the lowest income areas. Meanwhile, consumers who live in high-income areas have average balances that are $300 lower than in December 2019.
Credit card debt has been rising all year, according to the New York Fed, and its researchers chalk up the increases to a few possibilities:
Consumers are no longer putting off “services” purchases like vacations and travel.
Higher prices of goods and services because of inflation.
People aren’t slowing consumption of goods and services despite inflation.
New York Fed researchers say they expect to see credit card debt increase as it usually does heading into the holidays.
Debt is up, but delinquencies are down
Debt is higher than pre-pandemic levels, according to the New York Fed’s report. It increased by $351 billion, or 2.2%, in the third quarter of 2022 and now sits $2.36 trillion higher than at the end of 2019.
That’s good news for lenders and less of a celebration for consumers. What consumers can rally around is a lack of a significant uptick in delinquencies, which remain below historical trends, the report found. Researchers at the New York Fed largely chalk that up to excess savings still bolstering some borrowers. The percentage of consumers with debt in collections still remains lower than pre-pandemic levels.
Here’s what’s happening with other types of debt, according to the New York Fed’s findings:
Mortgages make up 71% of all outstanding household debt balances compared with 69% in 2019. New York Fed researchers say the refinancing boom in housing is over because of increasing interest rates, and what is left are purchases. New mortgage originations have slowed to pre-pandemic levels. Total mortgage debt is $11.67 trillion.
Student loans — the majority of which are federal loans that have been paused since March 2020 — saw slight balance declines likely due to discharges through existing loan forgiveness programs such as Public Service Loan Forgiveness. The pause is expected to lift next year. Total student debt stands at $1.57 trillion.
Auto loan balances continued to increase in the third quarter on a consistent 11-year upward trend, but the number of originations (i.e., cars being bought) has decreased since the previous quarter. New York Fed researchers say those who may be struggling likely bought a car recently, and the price would have been inflated compared with that of past years. Younger borrowers, ages 18 to 29, are struggling most with auto loan payments. Total auto loan debt is $1.52 trillion.
Home equity line of credit, or HELOC, balances increased for the second consecutive quarter after years of decline. Total HELOC debt is $322 billion.