US credit card debt hits record $1.29 trillion as household debt grows

What happened

The Federal Reserve Bank of New York published its quarterly household debt and credit report on Tuesday. Card balances grew by $22 billion between July and September to $1.29 trillion, a record according to CNBC, and were 4.2% higher than a year before. All household borrowing, from mortgages to student loans, climbed 1.8% to $19.1 trillion. Mortgages added $257 billion to reach $13.4 trillion, auto loans rose $21 billion to $1.73 trillion and student debt edged up $5 billion to $1.66 trillion. The portion of outstanding debt that was late in some way rose to 5.0% from the prior quarter's level, up 0.3 percentage point.

What it means

Most of the quarter's growth came from housing, not plastic. Mortgage balances made up the bulk of the $334 billion increase, and new mortgage lending picked up sharply, with $595 billion originated in the quarter. Home equity lines of credit, which let owners borrow against the value of their homes, rose $23 billion to $481 billion. The New York Fed said that was the biggest quarterly jump in those balances since 2005.

Card debt is still the part that worries many economists, because it is so costly. The average interest rate on a new card offer is about 24%, according to LendingTree data cited by CNBC. Lenders also raised total card credit limits by $115 billion in the quarter, giving consumers more room to borrow. TransUnion separately found the average card balance per consumer was $6,678, up 2.4% from a year earlier, while the number of cardholders grew to 178 million.

New York Fed researchers linked part of the strain to looser lending during the Covid pandemic. Over time, a growing share of new cards went to people with lower incomes and weaker credit scores, and those accounts now show more distress, they said. The bank also pointed to high inflation and rising borrowing costs, noting that prices have outpaced pay for lower-income households. A Money Management International analyst, Ted Rossman, told CNBC that "a lot of damage has been done" even as balance growth slows.

The picture on missed payments is mixed. The flow of card balances into serious delinquency, meaning 90 days or more overdue, slipped to 6.87% from 7.05% a year earlier, and early card delinquencies improved slightly. For student loans, that flow nearly halved, falling to 7.72% from 14.26%. Auto loans and mortgages moved the other way: early delinquencies rose for both, and the mortgage flow into serious arrears climbed to 1.60% from 1.28%, though the New York Fed said housing credit quality remains strong.

The bull case

Household borrowing is growing at a moderate pace, led by mortgages and home equity lines, which are backed by property. Card delinquency flows improved slightly, and serious arrears on student loans fell sharply from a year ago. Rising credit limits and more cardholders suggest lenders still feel confident about consumers, which could keep spending, and card issuers' interest income, ticking along.

The bear case

Record card balances at roughly 24% interest are a heavy load, and the strain is concentrated among lower-income borrowers whose pay has lagged prices, according to the New York Fed. The overall delinquency rate rose to 5%, and early arrears on auto loans and mortgages are creeping higher. If borrowing costs stay high, more households could fall behind, squeezing spending and lenders' credit quality.