- Americans' credit card balances spiked $52 billion in the last three months of 2021.
- Inflation is partially responsible, raising the cost of food and gas.
- Government aid money helped people pay off debt earlier in the pandemic, freeing up cash for other purchases.
Americans have been swiping their credit cards at record speed in the last few months, as rising inflation eats into the savings people accumulated during the pandemic.
The total US household debt hit $15.8 trillion in the fourth quarter of 2021, the New York Fed reported this week, seeing an increase of $333 billion from the previous quarter. Credit card balances alone hit $860 billion, up $52 billion in that same timeframe. That's the largest quarterly increase the Fed has seen in the 22 years it's been collecting data, the researchers say, adding that the surge in debt overall was driven by home and car purchases.
"The total increase in nominal debt during 2021 was the largest we have seen since 2007," Wilbert Van Der Klaauw, senior vice president at the New York Fed, said in a statement. "The aggregate balances of newly opened mortgage and auto loans sharply increased in 2021, corresponding to increases in home and car prices."
An end-of-the-year rise in debt is typical, the Fed says, following a pattern of paying it off during the first quarter of the new year. Overall, credit card balances are lower than pre-pandemic, $71 billion less than where they stood at the end of 2019. The recent acceleration in debt is likely due to the fastest inflation in decades, the Fed says, raising the cost of everything from beef to furniture. Finally, Americans used pandemic-era government aid to pay off debt, which means they had available credit to use on new purchases.
Inflation is leading to credit card debt, but Americans are paying it off for now
The Consumer Price Index, a commonly used measure of US inflation, rose 7.5% year-over-year in January, the Bureau of Labor Statistics announced this week. Economists say it likely won't get worse than that in 2022, but it follows a year of inflation that already raised prices on gas and groceries faster than usual.
In addition, real wages have not kept up with inflation, so people have less cash to spend after they pay for their usual expenses, which is likely what's racking up credit card debt.
However, people look to be paying off their balances. Delinquency rates are low: only 3.2% of credit card debt was more than 90 pays past due (what the Fed calls "serious delinquency") by the end of last year, the researchers said.
One question is if this acceleration of debt will last. The Fed said on Tuesday that though it surpassed the pre-pandemic levels by the end of 2021, the seasonality of credit card balances makes it hard to predict.
Stimulus savings are still influencing how much money we have to spend
Savings from government stimulus during the pandemic may explain why people are spending more.
Many programs like Biden's child tax credit have now ended, but along with increased unemployment benefits and stimulus checks, these cash infusions helped Americans pay off debt. US households reported spending approximately 40% of their stimulus checks, on average, saving about 30% and using 30% to pay debts.
"Overall, the loans originated during 2021 are performing well, compared to other recent vintages," the Fed said in a blog post. "Personal income has grown during the past year (and has been supplemented since the pandemic's start by stimulus programs including transfer payments to households), and this helped borrowers make their payments on time."
Americans have had more savings than ever, on average, something that's true for all four income quartiles, according to JP Morgan Chase, and they have also been spending more in general.
December's big jump in debt looks like it will clear, as Americans look to go as far as their dwindling aid supply will take them.