Monday, September 18, 2023
U.S. credit card debt just topped $1 trillion for the first time ever. Balances grew by $45 billion in the second quarter alone, according to the Federal Reserve. On top of that, credit card delinquencies hit an 11-year high, meaning consumers are falling further behind on payments relative to last year.
This is concerning because mortgages, which are typically the largest portion of U.S. household debt, remain largely unchanged. That means people are increasingly spending beyond their means, buying non-mortgage-related goods and services with their credit cards.
Inflation has certainly played a role. But it can’t be the entire reason for the exploding debt. I have to think some portion of this is down to a lack of personal restraint when it comes to spending.
This is obviously bad news, but the ripple effects could be worse. With outstanding credit card debt at a new high and consumer spending accounting for more than 70% of U.S. gross domestic product (GDP), Americans will have less money to fuel our consumer-centric economy.
Now let’s put this into perspective. Our national debt is also at record levels – nearly $33 trillion as of this writing. That is about 128% of our GDP, which was last measured at $25.46 trillion.
That’s the biggest debt-to-GDP ratio in most Americans’ lifetimes. Our debt amounts to more than $94,000 per person or $240,000 per household.
Other countries have worse debt-to-GDP ratios, that is true. However, we’re entering new territory for the country’s finances, and it isn’t too promising.