How Does $1 Trillion Consumer Credit Card Debt Affect Society?

One of the most pressing issues economists are concerned about is the growing amount of consumer credit card debt. Americans’ total credit card balance is $986 billion in the first quarter of 2023, according to the latest consumer debt data from the Federal Reserve Bank of New York. That’s unchanged from the fourth quarter of 2022’s record number, leaving the balance the highest since the New York Fed began tracking in 1999.  This lack of change means this report marks the first time since 2001 in which credit card debt didn’t fall in the first quarter. Thanks to rising interest rates, stubborn inflation, and myriad other economic factors, it’s likely just a matter of time before credit card balances surpass $1 trillion.

Why is this happening?

High inflation has fueled Americans’ growing credit card debt, with millions living paycheck-to-paycheck. With higher balances, we have seen significant increases in delinquency rates on revolving accounts and personal installment loans month over month. Typically, it’s consumers’ day-to-day living expenses, or some kind of emergency expense, that gets folks into trouble — not lavish spending. Savings rates are now on the decline, leaving households less in reserve to help weather the effects of inflation.

• 55% of Americans worry about an unplanned financial emergency.
• 40% of Americans have no plan for handling an emergency.
• 60% of Americans are unable to cover an unexpected $500 expense.

Credit card delinquency rates increased .16% from the prior quarter to 5.32%. The youngest Americans (18 to 29) suffer the highest delinquency rate of 9.36%. That’s 76% higher than the total average credit card delinquency rate.

So, what is the deeper meaning?

The impact of nearly $1 trillion in credit card debt has on society cannot be ignored. The effects of this trend on society are far-reaching. High levels of consumer debt can lead to increased stress and anxiety, which can negatively impact mental health. In addition, people who struggle with debt often have to cut back on spending in other areas of their lives, which can lead to reduced economic activity in the broader economy.

What can we do?

There are several steps we can take to start addressing this issue. First and foremost, we need to educate consumers about the dangers of credit card debt and how to use credit responsibly. This could include providing financial education in schools and at the workplace, as well as offering resources for people who are struggling with debt.

In addition to education, there are also policy changes that could help. For example, some experts have called for stricter regulations on credit card companies to prevent them from issuing too much credit to people who can’t afford it. Others have suggested implementing limits on interest rates and fees, which could help prevent people from getting into debt in the first place.

Lastly, we need to prioritize financial stability as a society. This means investing in programs that support those who are struggling financially, such as job training and affordable housing. We also need to work to improve access to credit for low-income individuals, who may have limited options for borrowing money in times of need.

Record high levels of consumer credit card debt are a serious problem that, if left untreated, can bring catastrophic consequences. Action is required from all sectors of society. By providing education, implementing policy changes, and prioritizing financial stability, we can start to tackle this issue and create a more financially secure future for ourselves and the following generations.