Credit-card balances hit $986 billion in the fourth quarter last year and remained largely unchanged in the first quarter of this year, the Federal Reserve Bank of New York said in its most recent quarterly report on household debt. It looks increasingly likely that credit-card debt is on track to hit the $1 trillion mark this year, and experts say that this number could be an indicator of a looming economic downturn.
This has raised eyebrows among some observers, because people typically pay off their debts from the holiday season in the first quarter of the year. That did not happen this year. This was the first time credit-card debt did not make its customary dip between the fourth and first quarters since the end of 2000 and the beginning of 2001, New York Fed researchers said. That was a recession marked by the end of the dotcom bubble.
“Although inflation is slowing and wages are starting to rise, inflation is still squeezing people’s budgets,” said Mary Eschelbach Hansen, a professor of economics at the American University in Washington, D.C., and author of “Bankrupt in America: A History of Debtors, Their Creditors, and the Law in the Twentieth Century.”
But she said she doubts that the biggest problem is people splurging on gifts over the holidays or postpandemic “revenge travel” that they are now unable to pay off. “It seems likely that part of the fourth-quarter run-up in balances went towards groceries and other everyday bills rather than holiday expenditures, and folks are having a harder time paying that back,” she said.
Others shared her concerns. “I see several worrying trends here,” said Ted Rossman, senior industry analyst at Bankrate.com. “Credit-card debt is something that’s easy to get into and hard to get out of. More people carrying balances at higher rates for longer periods of time is definitely a bad combination. We’re seeing more people financing day-to-day essentials on credit cards.” READ MORE...
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