Credit-card debt recently reached a new milestone – it has returned to where it was before the pandemic.
Total card balances in the U.S. hit $916 billion in September, nearly identical to December 2019 levels, according to the credit-reporting firm Equifax Inc. Balances are up 9% from January and about 23% higher than their pandemic low in April 2021.
Card balances fell sharply in the early months of the pandemic after Americans, out of work and stuck at home, cut back on spending. Stimulus checks later padded savings accounts and allowed many to pay down costly debt.
When the economy reopened and people went back to work, credit-card issuers launched a big push to get people borrowing again. Many loosened underwriting standards, making it easier for people with lower credit scores to get cards.
Now, Americans are spending and borrowing, despite fears that a recession is on the horizon. Missed payments on credit cards, while rising, remain below pre-pandemic levels.
Still, rising card balances could be an early sign of financial pain. Consumers are still paying a higher share of their balances than they were before Covid-19 hit, according to card issuers, but that figure at some lenders is starting to decline. The rising cost of food, gasoline and housing, meanwhile, has strained household budgets, forcing some Americans to use their credit cards to make ends meet.
The trillions of dollars in rainy-day funds Americans built up during the pandemic are dwindling. The personal saving rate as a share of disposable personal income fell to 3.3% in the third quarter, one of the lowest readings going back to the late 1940s and down from 26.4% in the second quarter of 2020, according to the Bureau of Economic Analysis.
Consumers had credit-card debt of $5,529 on average in September. That figure has been rising but remains below its pre-pandemic peak, according to the credit-score provider VantageScore Solutions LLC.
At JPMorgan Chase & Co., credit-card balances that are carried from month to month increased 15% in the third quarter from a year prior, but they remain slightly below pre-pandemic levels. At Citigroup Inc. and Bank of America Corp. , general-purpose credit-card spending fell slightly from the second to the third quarter while balances increased, evidence that people who are carrying debt from month to month are contributing to rising loan balances.
Interest-earning balances on Citigroup general-purpose cards grew 9% in the third quarter from the same period last year. The bank said it expects those balances to continue to grow in the fourth quarter. These are indicators that must be closely monitored in the months ahead