Americans’ total credit card balances rose again during the third quarter of 2023 to an all-time record of $1.08 trillion, according to a report recently released by the New York Fed. These balances have soared an incredible 40 percent since the first quarter of 2021.

To be fair, that reading was artificially low since many Americans used their COVID-19 stimulus funds to pay down debt. And most people also spent less in 2020 and early 2021 as the pandemic greatly curtailed travel, dining and many other aspects of daily life. But the recent exponential increases have brought credit card balances well above the trend line that we would have expected prior to the pandemic.

Looking back at pre-pandemic “normalcy”

In 2017, for example, credit card balances rose 6.7 percent. In 2018, they rose 4.0 percent. In 2019, the growth rate edged up to 5.3 percent. Then balances dropped 16.9 percent from the fourth quarter of 2019 to the first quarter of 2021 due to the aforementioned pandemic factors. But since then, they have been on a rocket ship upwards.

Over the past four quarters, on a year-over-year basis, credit card balances have grown 15.2 percent, 17.2 percent, 16.2 percent and 16.6 percent, respectively. Those figures are about triple the typical growth rates from 2017-2019.

Inflation has been a key driver of this trend, of course. And as a result of the Fed’s efforts to lower inflation by raising interest rates to slow economic activity, the average credit card rate has jumped from 16.30 percent at the beginning of 2022 to 20.72 at present.

This is taking a toll at the household level

A Bankrate survey conducted this past summer found that 47 percent of credit cardholders carry debt from month to month, up from 39 percent in late 2021. And about 60 percent of these individuals with credit card debt have been in credit card debt for at least a year, up from 50 percent about two years prior. The latest New York Fed report indicates that credit card delinquencies have surpassed pre-pandemic levels and are rising fastest among young adults and Americans with lower incomes.

All of this sounds very negative, and in many respects, it is. More people carrying more debt at higher interest rates for longer periods of time isn’t exactly a recipe for financial success. But a deeper examination reveals some silver linings.

The sunnier side of the street

First of all, economic growth was very strong in the third quarter. The 4.9 percent annualized growth rate in the most recent quarter was the highest reading since late 2021, and it’s well above the Fed’s long-run expectation of about 2 percent. And given that consumer spending powers the vast majority of economic growth, in some respects, these higher credit card balances reflect more economic activity and perhaps even confidence in the economy and the job market.

This is where it gets squishy on a couple of levels. Consumer sentiment, as measured by the University of Michigan’s widely respected index, remains well below typical pre-pandemic levels. If you only looked at the consumer sentiment readings, you would think the economy is in pretty terrible shape, which contradicts the actual economic growth figures.

Yet despite the downbeat mood, consumer spending has been particularly strong in discretionary categories such as travel, dining and entertainment (which again reminds me that we’re still sorting through the pandemic aftermath; “revenge travel” and other pent-up demand still seems to have room to run). Normally, all of these recession worries wouldn’t be accompanied by such a surge in discretionary spending.

Another inherent contradiction is that the job market is quite robust. The 3.9 percent unemployment rate has risen a little bit in recent months, but it’s still close to a half-century low. And wage growth has been solid. Average hourly earnings growth is even starting to outpace inflation. Wage growth clocked in at 4.1 percent in October while the Consumer Price Index increased 3.7 percent.

It’s all relative

This brings me to a very important point with respect to credit card debt. The household debt-to-income ratio is very much in line with the 2012-2020 readings, which were the lowest since this data set began in 1980. The ratio fell to artificially low levels in 2020 and early 2021 due to the pandemic and has now returned to its pre-pandemic “normal,” which wasn’t too bad.

In fact, “normalization” is a term that banks have been using for a while now to describe the post-pandemic recovery. As in, delinquencies were artificially low for a while, and now they’re basically back to 2019 levels, which were still pretty low in the historical context.

Statistics are interesting. Do you focus on the fact that the credit card delinquency rate has almost doubled from its pandemic low (from 1.55 percent to 2.77 percent), or do you focus instead on the fact that it was a very similar 2.62 percent at the end of 2019, which was lower than the readings from most of the prior three decades? The same is true of the debt-to-income ratio. Do you prefer the glass half-full or half-empty?

Reasons for optimism

I’ll go with half-full on this one, at least in the big picture. Overall, I’m not particularly concerned about the rise in credit card debt. In many respects, we would expect these numbers to grow over time due to economic growth, population growth, more card usage (as cash becomes less and less popular), more e-commerce and so on.

Remember, too, that more than half of cardholders pay in full each month and avoid interest. Their statement balances are still counted in these figures, even though using cards for convenience and rewards without paying interest is very different from lugging around a hefty balance with a 20+ percent interest rate for years and years.

Still, the recent growth rates probably aren’t sustainable, and at the household level, I want to again stress how important it is to pay in full if at all possible. Or if you need more time, to sign up for a balance transfer card with a generous 0-percent interest promotion or engage with a reputable nonprofit credit counseling agency.

Your specific situation matters

Credit card debt is one of those “all news is local” kinds of issues. Just like the saying that if your neighbor loses their job it’s a recession but if you lose yours it’s a depression. If you have $5,000 in credit card debt and you only make minimum payments at the average interest rate of 20.72 percent, you’ll be in debt for more than 16 years and will owe more than $7,000 in interest. That’s a problem.

And if the job market were to take a noticeable turn for the worse, then I think delinquencies and defaults could become a much bigger problem. I’ll always urge households to bolster their emergency savings and pay down credit card debt.

But in totality, as shocking as some of these credit card debt statistics may sound ($1 trillion in debt!), I don’t think the big picture looks particularly gloomy. Last year was a record year for credit card sign-ups, according to Equifax, and the first seven months of this year were within 2 percent of that record pace. Credit is still flowing freely and the vast majority of cardholders are keeping up with their bills. For the most part, higher balances are being paid off with higher incomes.

The bottom line

Again, I’ll stress that not everyone is doing well, unfortunately. Some households are facing sizable economic challenges, and high inflation and high interest rates have disproportionately affected people with lower incomes and lower credit scores. These individual struggles can be concealed by the more favorable wider view. Even though record-high credit card balances don’t seem to pose a systemic economic risk, your household’s credit card debt (if you carry credit card debt) is a big deal to you.

I’ll close with my favorite saying about credit cards: They’re like power tools, as in, they can be really useful or dangerous. It all depends on how you use them. Always strive to pay on time and in full so that credit cards are working for you, rather than the other way around.

Have a question about credit cards? E-mail me at and I’d be happy to help.