Why Americans are taking on more credit card debt: 'My rent literally tripled'

Rob Robinson was doing a pretty good job managing his everyday expenses and basic necessities until he was forced to move out of his home in Lake Worth, Florida, when his landlord of over 20 years put it on the market.

“The only thing I could find in the area was something that was not only a lot smaller, but also a lot more expensive,” said the 54-year-old contractor. “My rent literally tripled. That put me over the top. I became much more reliant on my credit cards and started to take on more debt.”

Robinson is not alone. In fact, according to an Aug. 2 report from the Federal Reserve of New York, credit card balances increased by $46 billion in the second quarter. That’s a 13% year-over-year increase — the largest jump in more than 20 years. Total outstanding credit card debt rose to $890 billion in the second quarter, a $100 billion increase from the same time last year.

This increase in credit card debt largely reflects consumers’ struggle to keep up with skyrocketing prices for food, gas, and other basic necessities, said Shazia Virji, general manager of credit services at Credit Sesame. Even though inflation cooled notably in July, the price of goods and services is still painfully high, “prompting more consumers to use credit cards to make ends meet,” Virji said.

Some Americans may also be using credit cards to finance experiences such as travel and entertainment.

“They’re unleashing pent-up demand and spending a lot of money on things they previously missed out on because of the pandemic,” said Ted Rossman, senior industry analyst at Bankrate.

There’s no sign of slowing down. Americans opened an additional 233 million new credit card accounts during the second quarter. That’s the most since 2008, the year of the Great Recession.

“People who already have cards are getting more cards to fund their lifestyles,” Virji said.

'The overall picture is brighter than you'd expect'

The good news is that many consumers are keeping up with their payments.

“A near record amount are even paying down their balances in full,” said Rossman. “It may not feel this way, but the job market is one of the best we’ve seen in 50 years."

The rate of delinquency in the second quarter was 3.35%, up slightly from 3.04% in the same period last year, according to the Aug. 2 report from the Federal Reserve of New York.

“But they’re still historically low, and household balance sheets overall are strong. The overall picture is brighter than you’d expect,” he added.

During the height of the pandemic, the personal saving rate skyrocketed to 33.8% amid government stimulus and fears of a prolonged economic downturn. The rate now hovers around 5%, less than the 7.8% rate in the U.S. just before the pandemic.

“Consumers have had quite a bit of liquidity over the past couple of years, prompted by government stimulus, so they were able to save during this time period,” Virji said. “They made debt repayment a priority then and they’re making it an even higher priority now that interest rates are rising and debt is becoming more expensive. Interest is your biggest enemy.”

When the Fed started hiking rates in March of 2022, the national average credit card interest rate was 16.34%, according to Bankrate.com.

“Taking into consideration that the average balance is $5,010, if you only made minimum payments on this card, you’d be in debt for 185 months and would owe $5,546 in interest,” said Rossman.

“We’re likely to hit 18% soon, which would be a new record. In this scenario, minimum payments would last for 189 months and would accumulate $6,165 in interest ($619 more than the original scenario).”

Rising interest rates recently prompted 40-year-old Myrlande Desances to take action after racking up $12,000 in credit debt over the past year.

“My husband and I pulled up three months of statements and did an analysis before working out a plan to get out from under,” she said.

In addition to taking out a personal loan, Desances said she cut down on unnecessary expenses, began actively seeking discounts and coupons, and sold unused items on Facebook Marketplace.

“We never realized how much stuff we had in the basement and garage. We sold over $8,500 worth of stuff, including an old microwave, juicer, car parts, and an old washer and dryer,” she said.

Desances, now debt-free, is relieved. “The extra interest we were going to pay was only going to be another $20 a month, but we just didn’t want to get in any deeper," she said, "particularly in an environment that’s as challenging as this one.”

Personal finance journalist Vera Gibbons is a former staff writer for SmartMoney magazine and a former correspondent for Kiplinger's Personal Finance. Vera, who spent over a decade as an on-air financial analyst for MSNBC, currently serves as co-host of the weekly nonpolitical news podcast she founded, NoPo. She lives in Palm Beach, Florida.

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