Credit card debt rising in double-edged sword for the economy

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Americans’ credit card debt is on the rise despite high borrowing costs that may tick up further later this year and squeeze household budgets even more if the Federal Reserve follows through with anticipated interest rate hikes. 

During the COVID-19 pandemic, consumer credit card loans dipped dramatically as the U.S. government injected stimulus into the economy to insulate consumers’ finances from the pandemic’s economic fallout. Federal Reserve data shows that outstanding credit card debt fell from $858 billion in March 2020 to $736 billion in April 2021 – at which point it began a rebound that has seen credit card debt to $993 billion as of July 5, 2023.

Credit card debt reaching record highs comes as the Federal Reserve’s campaign of interest rate hikes aimed at tamping down inflation has pushed borrowing costs upward. According to LendingTree, the average credit card interest rate (or annual percentage rate) for U.S. credit cards is 24.06% as of July 10.

NEW SURVEY SHEDS LIGHT ON CONSUMER DEBT

Rising credit card debt shows American consumers are confident in their finances. (Robert Nickelsberg/Getty Images / Getty Images)

Credit card users are likely to see their APR tick slightly higher later this year as the Federal Reserve is expected to increase the benchmark federal funds rate – which influences rates for credit cards, mortgages and other borrowing – at least two more times. Inflation dipped to 3% year-over-year in June but remained above the Fed’s 2% target.

The rising levels of credit card debt show that American consumers feel confident enough about the economy to spend their hard-earned money and carry credit