Credit Card Balances Spike, Surpassing Pre-Pandemic Peak

Credit card balances and other types of revolving credit held by U.S. households surged to an all-time high of $867 billion in May, as rising inflation has led to a rebound in credit card transactions.

The rise follows a steep decline in outstanding credit card debt during the early stages of the pandemic, as government stimulus checks and reduced spending during lockdowns allowed many individuals to pay off their credit card balances. In aggregate, consumers paid off $83 billion in credit card debt during the initial phase of the pandemic, with the personal savings rate rising to the highest level since World War II.

The situation has changed markedly in recent months, however, as soaring inflation and rising costs for basic consumer staples including food and gas have prompted many Americans to resume spending on their credit cards. The Federal Reserve recently released its Monthly Credit Report for the month of April, which documents the rate of increase of revolving and non-revolving credit, the former of which includes credit card balances. The report found that revolving credit increased 20% year-over-year in April, totaling $1.103 trillion and surpassing the pre-pandemic high of $1.098 trillion. Credit card balances likewise surged to a record high, with the Federal Reserve Bank of New York expecting a further increase over upcoming quarters. Total household debt, which combines credit card balances, auto loans, student loans, and mortgage debt, surged to a record $15.84 trillion. Meanwhile, household debt expressed as a percentage of income rose to 9.3% by year-end 2021, compared to a pandemic-era low of 8.4% recorded at the start of 2021.

Revolving credit had declined for 11 consecutive months between February 2020 and January 2021, falling 11% over this period and bottoming out at $970 billion. Over the next 15 months, the metric had fully recovered its pre-pandemic level and currently stands at a record. Credit cards feature some of the highest interest rates in the economy today, with the average annual rate currently at 16.61%. Rates are set to increase further as the Federal Reserve continues to raise its benchmark Federal Funds Rate to tame rising inflation, with hikes of 50 basis points (bps) expected in June and July.