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Three measures of US credit card debt

Is it troublesome that credit card debt has topped $1 trillion?

In 2023, outstanding credit card balances in the United States surpassed $1 trillion for the first time. This milestone has raised concerns about the health of household finances and the implications for consumer spending going forward.

The FRED graph above shows three measures of credit card debt, with all balances normalized to 100 in the first quarter of 2011 to better illustrate longer-run trends: The blue line shows the balances, the green line shows the balances adjusted for inflation, and the red line shows the balances as a percentage of disposable income.

The blue line shows the growth in balances on credit cards and other forms of revolving credit issued by US commercial banks since 2011. In 2023 Q3, balances were 18.2% higher than at the start of the recession in 2020 Q1 and 34.8% higher than the post-recession low in 2021 Q1.

This growth in credit card balances since 2021 has occurred alongside substantial inflation. Measured by the consumer price index (CPI), inflation reached a peak annual rate of 8.9% in June 2022. In total, the CPI rose 20% between May 2020 and October 2023, which is close to the growth in total credit card balances over this period. What do we see if we look at “real” balances—that is, nominal balances divided by the CPI? As the green line shows, in 2023 Q3, “real” credit card balances were essentially equal to their level in 2020 Q1.

Are these higher balances putting increased pressure on household finances? That depends on several factors, including the growth in other types of household debt, interest rates, and disposable income. Between 2020 Q1 and 2023 Q3, nominal personal disposable income rose by more than nominal credit card balances. As the red line shows, relative to disposable income, credit card balances were actually slightly smaller in 2023 Q3 than they had been in 2020 Q1. Of course, interest rates have risen substantially over this period, so the cost of carrying a balance has increased.

This isn’t a full analysis of the state of household balance sheets, but the growth in outstanding credit card balances does seem less alarming when compared with the growth in household income over the same period. For more insights on this topic, check on US credit scores and credit use rates.

About the data: These data don’t include balances on credit cards issued by non-bank entities, but credit card debt is mainly held by banks, so this measure is pretty solid. Also, by convention, FRED graphs show quarterly data as occurring in the first month of a quarter. So the peak in credit card balances shows as occurring in January 2020, or one month before the beginning of the recession. However, based on weekly data, the peak in credit card balances occurred during the first week of March.

How these graphs were created: Search FRED for and select “Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks.” From the graph, click on “Edit Graph” and open the “Add Line” tab, then search for and select “Disposable Personal Income” and “Consumer Price Index for All Urban Consumers, All Items in U.S. City Average.” For the latter two lines, add the Consumer Loans series under the “Customize data” section and set the formula to 100*(b/a) by clicking “Apply.” For all three lines, set the units to “Index (Scale value to 100 for chosen date),” enter the date “2011-01-01,” and set the frequency to “Quarterly.” Set the earliest date in the window to “2011-01-01.”

Suggested by David Wheelock.

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