U.S. credit-card debt appears to be stubbornly holding near $1 trillion, the Federal Reserve Bank of New York said in its quarterly report on household debt and credit Monday.
In the fourth quarter, when credit-card debt tends to rise due to holiday shopping, credit-card balances hit a whopping $986 billion, surpassing pre-pandemic levels, the New York Fed said in a previous report.
The first quarter, however, is usually marked by falling credit-card debt as consumers pay that off. But that wasn’t the case in 2023: Credit-card balances held firm at $986 billion, the New York Fed said Monday.
It was the first time levels of credit-card debt had failed to fall between the fourth and first quarters in more than 20 years, New York Fed researchers said.
At the same time, credit-card interest rates are also on the rise, according to Bankrate data. The average credit-card interest rate is currently at a record high of 20.33%, making it more expensive for consumers to carry debt.
Interest rates can also vary by consumers’ credit scores, skewing higher for borrowers who are considered more “risky.” Young adults in communities of color are more likely to be in debt compared to their counterparts in majority-white communities and more likely to have lower credit scores.
Still, on the whole, total U.S. household-debt balances were up by $148 billion in the first quarter to reach $17.05 trillion, New York Fed researchers said — a slightly more muted increase compared to previous quarters, considering last year’s fourth and third quarters saw total debt levels rise by $394 billion and $351 billion, respectively.
One factor driving the more modest rise in debt levels: The first quarter had the lowest level of mortgage originations, including refinances, since 2014, reaching a level of $324 billion. In a blog post Monday, New York Fed researchers noted that a “pandemic boom” in refinancing, supported by lower interest rates and stronger household balance sheets, appeared to be over, though the 14 million mortgages refinanced earlier in the pandemic will “have effects on the mortgage market for years to come.”
“The improved cash flow generated by the recent refinance boom will potentially provide significant support to future consumption,” the researchers wrote.
Meanwhile, delinquency rates, while up slightly, also remained low in the first quarter despite rising debt levels. New foreclosures were also still low.
“The delinquency transition rate for credit cards and auto loans increased by 0.6 and 0.2 percentage points, respectively approaching or surpassing their pre-pandemic levels,” the New York Fed said in a statement Monday.