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Credit card debt reaches record high among U.S. consumers

The complaint filed by the Federal Trade Commission alleged that Credit Karma falsely told users they were preapproved for credit cards and other offers, harming their credit scores and wasting their time.
Jenny Kane
/
AP
The complaint filed by the Federal Trade Commission alleged that Credit Karma falsely told users they were preapproved for credit cards and other offers, harming their credit scores and wasting their time.

Personal loans and credit card debt reached record levels in 2022 due to financial pressures brought on by high inflation and climbing interest rates, according to third-quarter data from a consumer credit reporting agency.

Credit balances reached a record-setting $866 billion in the third quarter of last year – and they are expected to keep climbing, the report from TransUnion said. Meanwhile, personal loan originations are expected to return to pre-pandemic levels in 2023, after experiencing record growth in the last 12 months.

Michele Raneri, vice president of research and consulting at TransUnion, said that despite mounting financial pressures, there’s optimism among consumers.

A Consumer Pulse study conducted by the credit bureau found that more than half of Americans expressed confidence about their financial health in 2023. Among the most optimistic were those in younger generations, with around two-thirds of Gen Z and Millennial consumers reporting that they felt positive about their financial future.

“I think that’s because of the wage factor," Raneri said. "They’re getting more increases, they’re getting more promotions quicker than people who might be more established in the workforce.”

The debt increase was also heavily driven by Gen Z and Millennial borrowers in 2022, according to a November press release by TransUnion. Other drivers include high inflation and increased lending to “below prime consumers,” or those with lower credit scores.

"People that are financially stressed — certainly with inflation — it makes them more stressed," Raneri said. "And so that's where things like a credit card can be used as a bridge until times get better.”

Credit balances grew at a higher rate among below-prime consumers, as did the rate debt repayments that are more than 60 days overdue.

In the third quarter of last year, those delinquencies increased 54 percent year-over-year to reach the highest default rate since 2014, according to TransUnion.

“We expect card delinquency to increase in 2023 as consumers face liquidity shortages from the prolonged high inflation environment, slowing wage growth, and expected increases in unemployment,” according to a statement by TransUnion senior vice president Paul Siegfried included in the release.

These credit market forecasts for consumers exist while 8 in 10 Americans also believe the U.S. is currently or will be in a recession by the end of 2023.

Gabriella Paul covers the stories of people living paycheck to paycheck in the greater Tampa Bay region for WUSF. She's also a Report for America corps member. Here’s how you can share your story with her.

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Gabriella Paul