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Americans’ credit-card debt just had the biggest jump in more than 20 years, New York Fed says

In a sign of the continuing toll from decades-high inflation, Americans loaded an extra $46 billion on their credit cards during the second quarter and their balances saw the sharpest increase in more than 20 years, according to the Federal Reserve Bank of New York.

Credit card debts grew 5.5% from the first to second quarter and 13% year-over- year. The annualized increase was the sharpest cumulative increase in more than two decades, New York Fed researchers said.

The trend was highlighted in the New York Fed’s quarterly report on household debt released Tuesday. The report suggested Americans are experiencing financial strain at a time when potential recession talk keeps rumbling and borrowing costs on debts are climbing.

Overall, Americans added $312 billion in mortgage and non-mortgage debt during the second quarter — an increase that New York Fed researchers called “pretty sizable.” In fact, it’s the largest nominal increase since 2016, a New York Fed statement noted.

At the same time, the data showed more debts were going delinquent in credit cards, car loans and elsewhere.

“The second quarter of 2022 showed robust increases in mortgage, auto loan, and credit card balances, driven in part by rising prices,” said Joelle Scally, administrator of the New York Fed’s Center for Microeconomic Data.

“While household balance sheets overall appear to be in a strong position, we are seeing rising delinquencies among subprime and low-income borrowers with rates approaching pre-pandemic levels,” Scally added.

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The amount of credit card debt behind by 90 days rose to 3.35%, up from 3.04% at the same time last year. Delinquent auto loans debts increased to 1.81%, from 1.61% at the same time last year.

Auto loan balances increased $33 billion during the second quarter as a scarcity of vehicles squeezed would-be car buyers into higher prices. Last month, data showed drivers were paying more than $48,000 for the first time ever in the average transaction price for a new car.

Overall, though the amount of now-delinquent debt “increased modestly for all debt types” it was still “historically very low,” according to a New York Fed announcement.

The cost of living climbed again in June, with inflation rates hitting a 41-year high.

The New York Fed report looks at the interest-rate-sensitive debts Americans are carrying at a time when the Federal Reserve keeps increasing a key benchmark interest rate that influences other rates borrowers pay.

Since March, the Fed has increased the federal funds rate four times, most recently with a 75-basis point increase last week.

The federal funds rate affects other lending rates, including those for credit cards and mortgages. The average APR for all credit cards was 15.13% during the first quarter, according to LendingTree. In July, the average rate on all new credit card offers was 20.82%, up from 20.17% a month earlier.

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The higher APRs are bad news for people carrying debts month to month, because those debts are becoming more expensive.

A 30-year fixed rate mortgage averaged 5.3% in the last full week of July, Freddie Mac
FMCC,
-1.26%

said. It was 2.5% a year ago. Two-thirds of newly-originated mortgages went to borrowers with credit scores of at least 760, considered a very good score, the data showed.

The rising rates, rising debt loads and inflation’s gnaw at purchasing power can put households in a tricky guessing game about whether to press ahead with a major purchase, or wait.

Student loans were the one source of debt that didn’t add extra weight to Americans’ debt load in the second quarter, researchers noted.

The Biden administration has been considering whether to move forward with a plan to cancel $10,000 per borrower. For now, the pause on federal student loan payments runs through August 31.

Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation. 

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