Key takeaways:
- US credit card debt has been growing significantly in recent years.
- More Americans are falling behind on payments.
- Small business owners may be impacted directly or indirectly.
Small business owners may feel the impact of rising credit card debt in a number of ways. As credit card debt climbs along with delinquencies, credit card issuers begin to become more careful about who they issue credit cards to, and the credit limits they offer on those cards. This can make it much harder for small business owners to get business credit cards.
Additionally, small business owners who rely on consumers to open their wallets may see sales decline if their prospective customers pull back on spending.
Is Credit Card Debt the Highest It Has Ever Been?
Credit card debt hit a record high in the fourth quarter of 2023 when it hit $1.13 trillion, according to the Federal Reserve Bank of New York. Since then, the total balance outstanding has fallen to $1.12 trillion at the end of the first quarter 2024.
What has risen in 2024 is the number of borrowers who are behind on their credit card payments, particularly those with high utilization rates.
Why Is US Credit Card Debt at an All-Time High?
There are many reasons why credit card debt in the US is extremely high at the moment.
Americans use credit cards for a wide range of purchases, everything from groceries and health insurance, to vacations. Credit cards themselves are not a problem when they are paid off in full each month to avoid high interest rates, however when they are not paid off in full each month, the credit card balance starts to accrue interest, often at a high annual percentage rate.
Unfortunately as people face harder and harder financial situations due to inflation, rising housing prices, or wages that don’t keep up with price increases, they may be forced to rely on credit cards more and more. The end of pandemic stimulus payments has also hit har for many.
It doesn’t take much to go from paying off a credit card in full to carrying a credit card balance.
Compounding the problem is the fact that interest rates have increased greatly since 2023 which also increases borrowing costs related to credit cards.
How Much Credit Card Debt Do Americans Have?
Americans have roughly 1.12 trillion dollars in credit card debt outstanding as of the first quarter of 2024. This is slightly down from the last quarter of 2023 (which had the highest recorded credit card debt levels for the US). Again, this is according to data in the Fed’s reports.
Total household debt in general—both housing and non-housing (credit cards and auto loan balances)—have been on the rise since the second quarter of 2013. Of course there have been both ups and downs since 2013, but the overall trend across the past 11 years has been an increase in debt.
How Many Americans Are Currently Delinquent With Their Credit Card Payments?
Credit reports are a snapshot in time and don’t always do a great job of distinguishing between those who charge a lot and pay in full (say, to earn credit card rewards or to finance a small business) versus those who carry a balance.
So there are other ways to try to get at the question of balances.
Liberty Street Economics, a publication of the New York Fed, has studied credit card delinquency rates by utilization.
Note the word “delinquent” in this context generally refers to those who don’t pay on time. On consumer credit reports, late payments fall into 30 day buckets, while business credit reports use Days Beyond Terms.
When looking at delinquency among credit card owners, groups are often separated by credit card utilization rates. Those with the lowest utilizations rates, less than 20%, historically have had the lowest delinquency rates and this continues to hold true.
Those with utilization of 20% to 60% have the second lowest delinquency rate at less than 5%, although it has increased slightly over the past three years.
The groups that have seen the biggest increase in their delinquency rates are those in the 60% to 90% utilization rate range and those with utilization rates between 90% and 100%.
For the top utilization group, the delinquency rate has increased from roughly 20% in 2023 to about 30% in 2024 so far. The second highest utilization group has not seen the same kind of increase in delinquency rates as the top group although the rate has increased since 2023.
What Are the Current Trends in Credit Card Debt Levels?
Credit card debt levels have been increasing since around 2011, with a dip during the pandemic, often attributed to the combination of pandemic relief funds and fewer opportunities to spend money on travel and entertainment.
In the last quarter of 2023, credit card debt hit an all time high of $1.13 trillion. While the first quarter of 2024 saw a slight dip, it is unclear if this downward trend will continue. It’s possible some credit card issuers will be cautious in issuing new credit cards, or keeping credit limits lower.
What Is the Average Credit Card Debt per Household in the United States?
The average credit card balance was $6216 in May 2024, according to VantageScore’s CreditGauge. The average utilization was 30.4%.
However, the average debt varies significantly by VantageScore credit score range (in thousands):
Sub Prime (300-600): 4.7K
Near Prime (601-660): 9.2K
Prime (661-780): 7.8K
Prime (780-850): 4.5K
What Is the Average Interest Rate on Credit Card Debt Currently?
The average interest rate on credit card debt is 21.59% for all accounts in Q1 2024. This is the highest average rate within the last five years.
Interest rates on credit card accounts will, of course, vary based on the card you get and your qualifications (including credit scores). A high credit card interest rate may be unavoidable but as long as you pay off your credit card in full every month you likely don’t have to worry about interest on your balance.
There are 0% intro APR credit cards that offer interest-free financing if you pay on time and pay off the balance during the introductory period of anywhere from a few months to as long as a year or more.
Find the best 0% intro APR business credit cards here.
How Are Small Business Owners Impacted by All Time High Credit Card Debt?
Higher credit card debt has several implications for small business owners.
For many business owners, there is a fine line between their personal finances and business finances. They may turn to personal credit cards to finance their small business, or may find it more difficult to take income from their business to pay their personal debts.
Most credit cards carry a variable APR and as interest rates go up, balances can be more expensive.
Credit card and running a business can both be stressful, and the two can be compounded when cash flow is a problem.
What Can Business Owners Do About Credit Card Debt?
If you are having trouble with credit card bills, perhaps trapped into making minimum payments or falling behind, there are several options to consider:
If you have personal credit card debt, a reputable non-profit credit counseling agency may be able to help. Learn about credit counseling from the Consumer Financial Protection Bureau.
If you have business credit card debt, you may be able to use a balance transfer credit card at a 0% intro APR to help you save money.
Often, though, credit card debt is a symptom of a larger problem. Business owners may find their business struggling with small business loans. Late payments can hurt business credit scores.
Here are 14 options if your business can’t make its payments.
This article was originally written on July 15, 2024.
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