(TND) — Americans' household debt continued its steady increase in the first quarter, hitting a new high of $17.69 trillion.
Federal Reserve Bank of New York’s report Tuesday also showed credit card balances decreased by $14 billion to $1.12 trillion. Still, credit card balances typically fall from the fourth quarter of one year to the first quarter of the next, and card balances this time around remained about 13% higher than they were a year ago.
“We almost always see credit card balances fall in the first quarter,” Bankrate Senior Industry Analyst Ted Rossman said. “It's the whole New Year's resolution thing, the post-holiday spending detox. You get your tax refund money and put it towards your credit card debt. It's normal for credit card balances to fall in the first quarter. This was actually a smaller drop than we often see.”
Credit card balances usually rise in the second and third quarters before spiking in the fourth quarter, around the holidays, he said.
“We could very well see more record balances later this year,” he said.
Mortgage balances rose by $190 billion, according to the New York Fed.
Balances on home equity lines of credit increased by $16 billion.
Auto loan balances increased by $9 billion.
Student loan balances were effectively flat, the New York Fed said. Student debt decreased $6 billion to $1.6 trillion.
Rossman said there were a fair number of warning signs in the new household debt report.
The credit card delinquency rate has basically doubled in the past two years, and it's at its highest point in more than a decade.
Credit card balances are up 45% over the past three years, he said.
Bankrate’s own research has found that nearly half of credit card users carry debt, which can be a killer with near-record 20.66% card interest rates.
If you have the average credit card balance ($6,360, according to TransUnion) and you only make minimum payments at the average credit card rate of 20.66%, you'll be in debt for more than 18 years, according to Bankrate.
“If you're a consumer with credit card debt, you really need to make debt payoff a priority,” Rossman said.
But there are positives to be found, too.
Rossman said the debt-to-income ratio is low.
WalletHub said the ratio of total household debt to deposits shows “consumers are in good shape,” and the ratio between total household debt and assets is “at a very healthy level.”
Even the total household debt of $17.69 trillion isn’t as bad as it seems on the surface, according to WalletHub.
While it’s a record in absolute terms, it’s not on an inflation-adjusted basis, WalletHub said.
Total debt actually decreased by 0.8% from the previous quarter when adjusting for inflation, according to WalletHub.
CREDIT CARD TROUBLES & TIPS
The New York Fed said about 8.9% of credit card balances transitioned into delinquency.
And the New York Fed said nearly a fifth of credit card borrowers were using at least 90% of their available credit. Those folks are maxed out on their credit, the New York Fed said.
Rossman said there’s a “big fork in the road” between people who pay off their credit card balances each month and those who rack up interest payments. Bankrate has found that 44% carry debt, and about six in 10 people with credit card debt have had it at least a year.
The personal saving rate is also low, just 3.2%.
The personal saving rate averaged 6.2% from 2016 through 2019, then it spiked during the pandemic.
But Americans have burned through a lot of their built-up savings.
Colorado State University economist Stephan Weiler previously told The National Desk that he gets “a little anxious” anytime the personal saving rate goes below 5%.
The saving rate is a percentage of disposable income. So, the 3.2% now means Americans on average are only putting away about $3.20 per $100 of disposable income.
Rossman on Tuesday said that could spell trouble for credit card debt and delinquencies moving forward.
But Rossman offered some tips for people looking to rid themselves of credit debt.
A silver lining is that despite rising interest rates, people with credit card debt can still get 0% balance transfer cards. You could pause your interest clock for up to 21 months with one of those cards, he said.
“They are looking to make money, let's be truthful,” Rossman said about the banks offering 0% balance transfer cards. “They're looking to bring in debt from their rivals, and they give you 0% for a while. And then they're banking on not everybody's going to pay this off before the clock runs out. But if you can pay before the clock runs out, and they give you almost two years interest-free, that's a great debt payoff strategy.”
Another good payoff strategy is working with a reputable nonprofit credit counseling agency. That's especially useful if you have a lower credit score or have a lot of debt, Rossman said. Money Management International is one such group.
And, as simple as it sounds, look for ways to up your income and cut your expenses, Rossman said.
“Any dollar you can put towards your credit card debt can be impactful,” he said.
