Americans owed a record $1.29 trillion on their credit cards at the end of September, the Federal Reserve Bank of New York said Tuesday, Nov. 10, in its quarterly report on household debt and credit.[1] Total household debt rose by $334 billion, or 1.8%, in the third quarter to $19.1 trillion.[1]
Related: Consumer Prices Rose 0.4% in October as Food Costs Jumped.
Card balances and home equity lines lead the climb
Credit card balances rose by $22 billion in the quarter.[1] They were up 4.2% from a year earlier.[2] Aggregate credit card limits rose by $115 billion in the quarter.[1]
Mortgage balances grew by $257 billion to $13.4 trillion.[1] Lenders originated $595 billion in new mortgages during the quarter.[1]
Balances on home equity lines of credit, or HELOCs, rose by $23 billion to $481 billion.[1] That was the largest quarterly increase in HELOC balances since 2005.[1] It was also the 18th consecutive quarterly increase.[3] HELOC balances peaked at roughly $714 billion in the first quarter of 2009.[3]
“Household debt levels rose moderately, led by increases in mortgage and home equity line of credit originations,” said Donghoon Lee, an economic research advisor at the New York Fed.[1]
Auto loan balances rose by $21 billion to $1.73 trillion.[1] New auto loans totaled $208 billion in the quarter.[1] Student loan balances edged up by $5 billion to $1.66 trillion.[1]
Delinquencies edge higher
About 5.0% of outstanding household debt was in some stage of delinquency at the end of the quarter.[1] That was up 0.3 percentage points from the second quarter.[1]
The rate at which borrowers moved into early delinquency rose for auto loans and mortgages.[1] It improved slightly for credit cards.[1] The transition into serious delinquency worsened for mortgages, though the bank said it remains low by historical standards.[1]
“Overall debt has been growing,” New York Fed researchers said on a press call. “This does reflect financial hardship out there.”[2] The researchers said an increasing share of new cards has gone to borrowers with lower incomes and credit scores, and that “those accounts are now showing higher levels of distress.”[2]
What borrowers are paying
The average credit card balance per consumer was $6,678, up 2.4% from a year earlier, in a separate report from TransUnion.[2] The average interest rate on a new card offer is about 24%, based on LendingTree data.[2]
“Higher prices and higher rates have pushed more people into debt,” said Ted Rossman, principal consumer finance analyst at the nonprofit credit counselor Money Management International.[2]
The average rate on a $30,000 HELOC was 7.49% as of Nov. 4, based on Bankrate data.[3] Most HELOCs carry variable rates that move with benchmarks such as the prime rate.[3]
Rates may rise again in December
The debt report came out the same day as October’s consumer price index, which rose 0.4% from September and topped expectations.[4] After the release, futures markets put the odds of a quarter-point Fed rate hike in December at about 90%, based on CME Group’s FedWatch tool.[4] HELOC rates are influenced by changes the Fed makes to the federal funds rate.[3]
Follow the data on The Boston Report’s U.S. economy tracker and Federal Reserve tracker, and more coverage on the Economics hub.
Our Take
Opinion. The headline record matters less than where the strain is showing. The borrowers most recently given credit are falling behind, and homeowners are tapping equity rather than giving up low mortgage rates. With a December hike likely, households carrying variable-rate debt face higher monthly costs. Paying down card balances before the next rate move is the most direct protection available.
Sources
- Federal Reserve Bank of New York: Household Debt Increased Moderately; Delinquency Transition Rates Remain Flat
- CNBC: Credit card debt climbs to a record $1.29 trillion, New York Fed research finds
- CNBC: Homeowners tap equity as HELOC balances post biggest jump since 2005: New York Fed report
- CNBC: Stock market today: Live updates
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