U.S. credit card debts rise at fastest pace in 20 years

According to the Federal Reserve Bank (FRB) of New York, credit card debt rose $38 billion to $925 billion in Q3, getting the numbers closer to the pre-pandemic level of $930 billion. That's the biggest quarterly jump in more than 20 years.

The Fed's interest rate hike to record high levels could be a real burden for young people and low-income households. Even so, statistics point to a growing reliance on credit cards by Americans.

Analysts at the New York Fed reported that new purchases boosting credit card balances also reflect steady demand amid higher prices for goods and services. The consumer credit group sheds light on faster increases in debt burden and delinquencies among younger and less affluent cardholders and could indicate a disproportionate impact of inflation.

Analysts also explained that the pandemic stimulus payments and bailouts distributed over the past two years have had a significant impact on the financial stability of borrowers in the U.S. Now that the financial cushion is largely exhausted, it is likely that Americans will continue to take out higher levels of credit, especially younger people, in an attempt to offset inflation.

Researchers at the New York Fed found that rising consumer prices have increased the burden on U.S. households, especially lower-income households. These borrowers had a harder time repaying their debts, and therefore were at greater risk of default.

The percentage of low-income borrowers going into delinquency is now already above pre-pandemic levels.

Still, overall delinquency rates remain low compared to the Great Recession of 2008 and the period before the COVID pandemic, the FRB of New York noted, suggesting that consumers can still manage their finances during this period of rising prices.

According to FRB economists, given that prices are up more than 8 percent from a year ago, it is not surprising that credit card balances are increasing. Notably, credit card balances have nearly doubled since last year. This leaves the solvency of borrowers on their credit cards in great doubt in the near future.