TAMPA, Fla. — As 2022 winds down, one of the most dominant themes of the economic year has been skyrocketing interest rates. And one of the areas most impacted by those high-interest rates has been the credit card industry.
According to Bankrate.com, the current average credit card rate of 19.42% is the highest on record. Bankrate said 2022 also saw the steepest single-year increase ever, with the average credit card rate increasing 3.12% since January 1.
Bankrate.com Senior Industry Analyst Ted Rossman points to inflation as the primary reason for record growth.
"Right now, we're kind of stuck in the murky middle, which is honestly kind of the worst possible spot," he said. "This is hitting people on both sides. We've talked mostly about rates, but the balances side has been climbing as well.
Rossman says credit card balances were up 15% from the third quarter of last year compared to the third quarter of this year. That's the largest increase on record for the data set going back about 20 years.
Other numbers from Bankrate and other financial agencies paint a grim picture of America's credit card debt.
- 39% of cardholders carry debt from month to month (Bankrate)
- 32% of millennials have more credit card debt than emergency savings (Bankrate)
- $866 billion — Amount of credit card debt Americans collectively hold (TransUnion)
- 19% — Amount credit card balances rose year-over-year as of the third quarter in 2022 (TransUnion)
- $5,474 — the average amount of credit card debt Americans hold as of the third quarter in 2022 (TransUnion)
- Gen Z — tends to have the lowest credit score, with an average of 634 (Intuit)
With the Federal Reserve set to raise interest rates more in 2023, there doesn't appear to be much relief coming for credit card customers. And even the smallest hike can add thousands to your debt.
For example, if someone has $5,000 in debt and makes only the minimum payments, a hike of 3.12% in interest rate will add $1,173 in interest to the debt, Bankrate.com said.
Still, TransUnion said credit card delinquencies haven't risen much over the last year and aren't forecasting a large rise in 2023 (roughly 0.5%).
So while the overall numbers may look bleak, Americans are still making their payments, even if the debt is continuing to grow. How long that will last is unknown. A 2023 recession, depending on the severity, could complicate everything.
Rossman says for anyone who may be struggling to keep up with their credit card debt, there are some tips to make it easier to pay off.
He suggests getting a 0% balance transfer credit card; such as the Wells Fargo Reflect card or the Citi Simplicity Card.
"All of those have 0% interest terms for up to 21 months. So you take your existing high cost credit card debt, move it over to this new card. By avoiding interest for almost two years, you could save hundreds, maybe 1000s of dollars depending on how much you owe and how you use the card," he said.
He also suggest charging less to the card. Paying more than the minimum payment, if possible, can also help prevent paying more in interest.
There are currently conversations happening in the Nation's capital surrounding credit card debt.
The Consumer Financial Protection Bureau is looking at changing to what Rossman describes as junk fees. Those fees include late fees, hotel fees, and overdraft fees.
"There are concerns that these are perhaps disproportionate that if you're paying $30 or $40 for paying a day late, is that fair? I think we could see more rules and caps in place there," he said.
It could also impact 'Buy Now Pay Later' models.
"I think it will start to be regulated more as a debt product, which I think is accurate. Right now, there are not a whole lot of rules about ability to repay and data privacy and buyer protections, things like that," he added.
Meantime, a bill in Congress could also bring about changes. The Credit Card Competition Act "prohibits credit card issuers from restricting the number of payment card networks on which an electronic credit transaction may be processed."
Rossman says he finds issue with the bill.
"The reason I don't like it in the real world is, it's interesting how they phrased it, because with debit cards back in 2010, they implemented an outright cap. And it was basically like a fraction of 1%. And the end result basically was retailers pocketed the savings, they didn't pass it along to consumers, and debit card rewards went away, because the funding source for these programs was gone. I think the same could happen with credit cards," he added.
The bill was referred to the Committee on Banking, Housing, and Urban Affairs in July.
