Credit Card Balances Surpass $1 Trillion

Gabriella Cruz-Martinez |

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Americans with credit card debt won’t see relief even after the Federal Reserve decided against hiking its benchmark rate last week. Their situation may even get a bit worse next year, at least temporarily. “Though inflation has probably peaked, delinquencies are rising and so are debts. Things are unpredictable, and when that’s the case banks tend to protect themselves by either maintaining rates at really high rates or taking them up a little higher,” according to Matt Schulz, chief credit analyst at LendingTree. Fed policymakers kept the range for the federal funds rate unchanged at a 22-year high between 5.25% and 5.5%. That marked the third consecutive pause since July, when the central bank last raised rates. Fed officials also signaled that they expect to cut the benchmark rate by three-quarters of a point next year. December also marked the 22nd consecutive month in which APRs on new credit card offers have risen, despite the Fed’s pause. At the same time, nearly 4 in 10 cards (39%) had possible APRs of 29.99% or higher this month, while 13% had interest rates above 30%. By comparison, in September 2019, just 2% of roughly 200 cards reviewed by LendingTree carried APRs of 29.99% or higher, with just 1% above the 30% mark — a threshold many credit card issuers historically have avoided. Before its third consecutive rate pause, the Fed had raised the federal funds rate 11 times since starting one of its most aggressive tightening cycles in March 2022. So why are credit card interest rates not letting up even though Fed hikes may be done? For one, as interest rates have risen over the past two years, some cardholders have been having a harder time paying off their debts. The delinquency rate on credit cards reached 2.98% in the third quarter, up from 2.77% the previous quarter, according to the Fed. It was also the highest level since 2012, when it was 2.92%. And with the federal pause on student loans having ended this year, more are struggling to keep up with their debts. According to the Department of Education, nearly 9 million borrowers missed their first student loan payment. Those added risk factors signal to banks big and small to keep their lending standards tight, Schulz noted, a trend that’s likely to continue going into 2024. In fact, as of the third quarter borrowers with FICO scores under 680 were less likely to be approved for a credit card compared to those with scores of 720 or above, according to the Fed. “The truth is, we’re still in a time where banks are tightening their lending standards and making it harder to get a credit card and other types of loans,” Schulz said. “So when there’s a time of a lot of uncertainty, rising delinquencies, debts are rising and a bunch of other economic factors, it shouldn’t be a surprise that card issuers err on the side of slightly higher rates, rather than moving down.”