Personal Finance

Credit card debt is at an all-time high, putting households near 'breaking point,' study shows

Key Points
  • Total credit card debt reached a record $930.6 billion by the end of last year, according to the latest credit report from TransUnion.
  • As average balances tick higher, households' finances are near their "breaking point," a separate study by WalletHub found.
As the Fed increases tightening, credit card rates jump to record highs
As the Fed increases tightening, credit card rates jump to record highs

More consumers are leaning on credit cards to afford increasingly expensive necessities such as food and rent.

That helped propel total credit card debt to a record $930.6 billion at the end of 2022, an 18.5% spike from a year earlier, according to the latest quarterly report by TransUnion. The average balance rose to $5,805 over that same period.

At this rate, households are nearing a "breaking point," according to a separate study by WalletHub.

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Using the Great Recession as a guide, the projected breaking point is the level of household credit card debt that will become unsustainable for most people, according to Jill Gonzalez, an analyst at WalletHub.

"It's when people won't be able to keep up with their bills," she said. "We're inching closer and closer to that breaking point."

'Increase in delinquencies is something to watch'

Delinquencies are already on the rise, TransUnion found. A delinquency is a payment that's 60 days or more overdue.

"The increase in delinquencies is something to watch," said Michele Raneri, vice president of U.S. research and consulting at TransUnion. As long as unemployment stays down, households are better able to pay their bills, she noted. "If unemployment goes up, and we see a spike in delinquencies, then that indicates a longer-term problem."

For now, job openings still far outnumber available workers, according to the U.S. Department of Labor's recent Job Openings and Labor Turnover Survey.

Credit cards are one of the most expensive ways to borrow money. Currently, annual percentage rates, or APRs, are around 20%, an all-time high.

If the Federal Reserve announces a half-point increase in its benchmark interest rate at the March meeting, those APRs will climb even higher. That will cost credit card borrowers an extra $3.4 billion in interest charges over the next 12 months, WalletHub calculated.

How to tackle credit card debt

"Something has to give," Gonzalez said. It's time to rein in spending, pay off debt and avoid any new debt, she added.

"Cardholders do have options, though," said Matt Schulz, chief credit analyst at LendingTree. Zero percent balance transfer credit card offers are even more plentiful than they were a year ago and remain one of the best weapons Americans have in the battle against credit card debt, he said.

Borrowers may also be able to refinance into a lower-interest personal loan. Those rates have climbed recently, as well, but at 10%, on average, are still well below what you currently have on your credit card, according to Schulz.

Otherwise, go back to the basics, advised Ted Rossman, senior industry analyst at Bankrate.

"Take on a side hustle, sell stuff you don't need, cut your expenses," he said. "A dollar saved is a dollar earned, and every dollar of credit card debt that you pay down has an average guaranteed tax-free return of about 20%."

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