US Credit Card Debt Hits Record $1.29 Trillion as Rate Hike Looms

US consumers added $22 billion to their credit card balances during the third quarter, according to New York Fed data. That pushed the total to an unprecedented $1.29 trillion.

Carrying those balances may soon become more expensive, as market participants now fully anticipate a Federal Reserve rate increase in December.

Record Card Balances Mask an Uneven Strain

The rise in card debt was part of a broader increase in borrowing, with total household debt expanding by $334 billion to $19.1 trillion. The New York Fed's quarterly report also shows credit card debt sitting $52 billion higher than it was a year ago.

Card repayment trends showed modest improvement. The proportion of balances that had recently become at least 90 days overdue fell to 6.87% from 7.05% a year earlier.

But a separate New York Fed analysis found that lower-income neighborhoods are bearing the heaviest burden. The gap in delinquency rates between lower- and higher-income areas has widened since 2022.

The researchers attributed the sharp rise in card delinquencies after 2022 largely to high inflation and increasing borrowing costs. Looser lending during the pandemic also added pressure, as more cards were issued to lower-income borrowers with weaker credit scores. However, they noted that this effect is diminishing as newer cards go to borrowers with higher scores.

How a December Fed Rate Hike Reaches Card Bills

High inflation and borrowing costs are back in the spotlight ahead of the Fed's December meeting. The October Consumer Price Index (CPI) rose 0.4%, exceeding the 0.3% forecast.

CME FedWatch data now indicates a 100% probability of a Fed rate increase on December 9. Traders see a 90.9% chance of a quarter-point move from the current 3.75%-4.00% range, and a 9.1% chance of a half-point move.

Those rate hike expectations also affected crypto markets. Bitcoin (BTC) declined following the CPI release and was trading at $73,566 at press time. BeInCrypto reported that the hotter-than-expected data wiped out $200 million in crypto bets. Higher rates boost returns on cash and bonds, making riskier assets less attractive.

For households, a rate hike would quickly impact credit card interest charges. The Consumer Financial Protection Bureau (CFPB) notes that most card Annual Percentage Rates (APRs) consist of two components. Each combines the prime rate with a margin determined by the lender.

The prime rate moves in tandem with the Fed's benchmark. As a result, variable card rates typically adjust within one or two billing cycles, according to Experian.

Card borrowing is already expensive, with the average APR on new card offers around 24%, per LendingTree. The added cost of a rate increase falls on borrowers who carry a balance month to month. Cardholders who pay their statement in full each month incur no interest.

Ted Rossman, principal consumer finance analyst at Money Management International, linked the debt accumulation to both inflation and borrowing costs.

“Higher prices and higher rates have pushed more people into debt,” he said.

New York Fed researchers expect card delinquencies to continue improving unless macroeconomic shocks occur. Since the researchers linked past delinquencies to rising borrowing costs, a rate hike on record balances could put that outlook to the test.