Personal debt hits record levels as consumers offload expenses onto credit cards & loans
In the third quarter of 2022, credit card and personal loan debt reached record levels, according to TransUnion data. This is thought to be a result of consumers using credit cards and unsecured personal loans to cover their expenses as they face higher costs of goods and services and higher interest rates.
At $866 billion, the amount of money owed on credit cards increased significantly in the third quarter compared to the same time last year, up 19%. This especially applied to young adults whose balances increased by 72% for Gen Z and 32% for Millenials. The amount of money owed on store-branded credit cards also increased 7%.
In a statement, Michele Raneri, vice president of U.S. research and consulting at TransUnion, said: "As long as employment numbers remain strong, there should continue to be a steady flow of customers seeking access to new credit products, credit cards and personal loans in particular, and concurrently, an ample supply of lenders willing to offer credit to them,"
Personal loan balances are increasing, especially among borrowers with subprime credit. In the third quarter of 2021, loan balances rose to $210 billion, a 34% increase from the previous quarter. The number of personal loans is increasing and reached 26.4 million in the third quarter, up from 21.6 million in the second quarter.
The number of people behind on their credit payments is similar to what it was before the pandemic started, but it has been slowly increasing over the past year, especially among people with poor credit.
Inflation impacting personal finances
The rising cost of everyday items like housing, food, and gas is making it harder for people to stick to their budgets. Official CPI numbers showed that prices went up 7.7% from October 2019 to October 2020. This is a down from the 8.2% inflation rate reported in September, but it's still much higher than the 2% target rate set by the Federal Reserve. This decrease in purchasing power can have a significant impact on consumers' ability to maintain their standard of living, save for retirement, and achieve other financial goals.
The Fed has been increasing its benchmark interest rate in an effort to control high inflation. They raised the benchmark rate by .75% in November, which was the sixth rate hike of the year.
