Debt, specifically debt from abusing credit cards, is becoming an increasingly large problem in today’s economy — especially around the holiday period. Is the commercialization of Christmas to blame, are consumers not being as responsible as they should be, what is the cause and what is the fallout?
The collective credit card bill of all Americans is currently standing at an astoundingly high number when compared to the previous year. This could be spelling bad news for the state of the economy — which is already quite tricky to begin with.
Credit cards and consumerist culture
Presents were not the only thing piling up around the Christmas tree this holiday season as a high number of new credit cards were opened, and subsequently stalled, this past holiday season according to the latest statistics of the American’s debt burden at the close of the year. There is hope that these cards are only being stalled temporarily and credit card delinquencies will begin dropping to lower levels.
The collective credit card bill for Americans is currently standing at a whopping $1.2 trillion, showing a 7% jump from the previous year’s total.
Additionally, mortgage and non-mortgage debt added another $93 million to the debt for the final quarter of 2024. The quarterly report regarding household debt from the Federal Reserve Bank of New York revealed that half of this amount could be attributed to freshly acquired credit card debt.
Furthermore, the full balance on car loans has shown a 3% increase since the last year and currently stands at a massive $1.65 trillion. Both of these numbers could be considered record highs, but it should be noted that these figures have not yet been adjusted for inflation.
The fourth quarter falls during the holiday season which is why the debt shows a huge increase as consumers are more likely to make bigger purchases for things like gifts, decorations, foods, and other goods or services for the full holiday experience. However, data from the New York Federal Bank has repeatedly shown that these number do decrease in the following quarter — so perhaps it is the capitalization of Christmas that is to blame.
Tariffs to cause more trouble
The president has recently made the executive decision to increase tariffs by 10% to 25% on goods imported from outside of the United States. As a result, we are now saddled with increased inflation rates and rapidly rising costs of living. Some economists are even claiming that households should expect their expenses to go up by an astounding $1,200 a year if these inflation rates continue to balloon.
Researchers from the New York Fed are somewhat baffled and have shared that “it’s difficult to know why consumers are opening up so many new cards.” Data shows that approximately 17 million new credit cards were opened in the last quarter which is more than triple the numbers recorded in 2023 — which stood at around 5 million. The last quarter brought with it an added debt of $45 billion and whilst this is a high number, it is lower than the $50 billion that was recorded for the same period in 2023.
Matt Schulz, chief credit analyst at LendingTree commented on the situation by saying, “This report feels like further proof that Americans are generally doing OK financially, but it wouldn’t take much for things to go from pretty good to pretty scary.”
An increase of close to 9% is being seen in newly delinquent credit card debt, whilst the portion of car loan debt that has only just become delinquent is sitting at a little over 8% for two quarters in a row. The last time we have seen numbers like this was 2010.
New York Feds researchers have shared that thanks to good debt to income ratios, the country’s balance sheets are not looking too shabby. However, they did also note that this “also masks specific instances of financial distress that many people face, especially lower-income households.”