How Americans Racked Up $1 Trillion of Credit Card Debt

Americans have accumulated a staggering $1.03 trillion in credit card debt, according to the latest data reported from the Federal Reserve Bank of New York. The figure surged by $45 billion, or 4.6 percent, between April and June alone.

At the same time, total household debt rose by $16 billion to $17.06 trillion, auto loan balances by $20 billion, and "other debt" by $15 billion, according to the bank.

The rising trend, according to experts, is due to the fact that most Americans are still struggling with the higher cost of living, even though inflation has fallen significantly since the peak of 9.1 percent in June 2022.

As of June 2023, inflation had slowed down to 3 percent, the lowest it has been since March 2021, but still higher than the Federal Reserve's target of 2 percent.

Wage growth in June was higher than inflation at 5.6 percent, according to the U.S. Bureau of Labor Statistics, but only began outstripping inflation in February. In addition, the cost of essentials such as housing, food and health care is thought to have risen faster than the headline rate of inflation suggests.

'A Dangerous Combination'

"Americans are turning to credit cards to navigate the high prices of goods and services resulting from inflation," Melissa Lambarena, credit cards expert at personal finance company NerdWallet, told Newsweek. "Many are being sandwiched between these costs and rising interest rates. Both factors are a dangerous combination that's leading to a record amount of debt. "

"High credit card usage is a symptom of rising costs, layoffs, and stagnant wages," said Deborah Owens, the founder of WealthyU, a platform helping women to invest.

"High credit card debt isn't merely a result of poor financial decisions but a symptom of more significant systemic issues," she told Newsweek. "Rising living costs, due to inflation, coupled with stagnant wages make it harder for families to make ends meet, forcing reliance on credit for essential needs."

Maysam Rizvi, CEO of debt management platform Elifinty, said that an increased focus on marketing and promoting credit card use is also linked to the rise in related debt.

"Since the last financial crisis household income has not risen in line with expenses, and most households have filled the gap with debt," he told Newsweek.

"Credit cards in America are the most commonly available type of credit—from store cards to promotional cards from banks and other card providers with aggressive marketing and easy-to-sign-up services," he added.

"Historically speaking, the marketing for credit cards has also been very strong—including mention in popular media—which has meant that Americans are more aware of credit cards as a financial product as opposed to other types of debt."

According to Lambarena and Rizvi, Americans' credit card debt may continue to increase in the future.

"It's likely that consumers will continue to turn to credit cards to pay for essentials like gas or food as prices remain high," Lambarena said. "For those carrying a balance with today's sky-high interest rates, their debt may also continue to dramatically increase if they aren't paying more than the minimum payment at every due date."

"The challenges in the current economic environment mean that to maintain the same living standard, American households have to spend more from their income or put it on credit cards," Rizvi said.

Read more: What Is a Balance Transfer, and Should I Do One?

Eventually, this might lead to a catastrophic situation for households unable to repay their debt.

"Large amounts of debt will mean that at some point households will start missing payments and card providers will start cutting people off, which will lead to challenges for people that were using credit cards for essentials," Rizvi said.

"The whole debt economy will suffer. People won't be able to pay rent, buy groceries, or maintain their living standards. At some point, demand for goods and services will drop and we will see a reduction in inflation as merchants cut prices to entice more sales," he added.

How To Manage Your Debt

In order to avoid finding themselves in a financially uncomfortable situation, Americans should work on their debt-payoff plan, Lambarena said, "because the longer you put it off, the more expensive it gets."

She recommends people review their budget for potential expenses they can swap or trim, and then explore whether they qualify for options to lower their interest rate.

"With good credit, an option might be a 0% intro APR balance transfer credit card that allows you to move your high-interest debt onto the card to pause interest charges for several months," she said.

"With multiple debts, explore if a personal loan can consolidate them into one low-interest fixed payment. And, if you're really struggling to keep up with payments, it may be time to seek the help of an expert like a counselor at a nonprofit credit counseling agency."