An explosive rise in credit card balances partly fueled growth in the third quarter, per a Federal Reserve Bank of New York report.
Total household debt climbed to $17.3 trillion in Q3 2022, up $228 billion from the prior quarter, the New York Fed stated.
Credit card balances jumped $48 billion to $1.08 trillion. Student loan balances reached $1.6 trillion. Mortgage debt hit $12.4 trillion.
Auto loan balances also swelled to $1.6 trillion.
Delinquencies on making required debt payments escalated for most categories except student loans.
“Credit card balances saw a large increase in Q3, aligning with robust consumer spending and economic growth,” said Donghoon Lee, an Economic Research Advisor at the New York Fed. “The ongoing rise in credit card delinquency rates is widespread across incomes and regions, but especially pronounced among millennials and those holding auto loans or student loans.”
The New York Fed noted missed federal student loan payments won’t impact credit reports until Q4 2023 under a temporary policy. So less than 1 percent of total student debt was reported seriously delinquent last quarter, remaining artificially low for now.
The report illustrates surging reliance on credit cards to sustain spending growth amidst high inflation and rising interest rates. But leaning on credit card financing allows households to temporarily mask financial strains.
Higher delinquencies indicate many consumers are struggling to keep up with mounting debt payments across the board. But student loan non-payments are still being masked for now, understating true distress.
Credit cards provide short-term flexibility to smooth over budget holes. But over-reliance risks serious hardship if minimum payments become unmanageable, especially if the Fed hikes rates further.
Millennials and other demographics already laden with student loans and auto debts appear most prone to credit card delinquencies, signaling intense economic pressures.
While credit cards support consumer demand in the near-term, heavy debts haunt future consumption. Ultimately households can’t chronically spend beyond their means without consequences.
The Q3 debt and delinquency spike suggests many see credit cards as a lifeline amid economic anxieties. But long-run stability requires strengthening family balance sheets and spending within limits.
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