Consumer debt just topped $5 trillion for the first time ever. Is there cause for worry?
New data from the Federal Reserve shows overall outstanding debt carried by U.S. consumers breached the $5 trillion mark last November, marking an all-time high.
Robust holiday spending helped drive up consumer debt by $23.8 billion over October levels and marks the third straight month of increases. A report from Wells Fargo economists notes the main driver of this increase was revolving consumer credit, a category primarily composed of credit cards, which accounted for $19.1 billion of the overall increase. Non-revolving debt also contributed to the increase in November, though it was a more muted $4.6 billion gain and in line with the pace of increases in the two months prior, according to the Wells Fargo report.
The 1.5% month-over-month jump marks one of the biggest ever in terms of both percentage change and dollar amount.
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While higher overall consumer debt can reflect numerous factors, including more users among a rising population, more across-the-board spending and/or spending on larger purchases, some economists warn growing balances could be a marker of concerning issues.
“Credit card usage and buy-now-pay-later usage seemingly surged during the holidays, on top of already hefty debt loads,” Ted Rossman, Bankrate senior industry analyst, told CNN. “Now, delinquencies are at their highest level since 2012.”
“That seems to debunk the ‘normalization’ thesis offered by banks and card issuers — as in, delinquencies were artificially low during the pandemic because of stimulus and people spending less, so we knew they would rise back to 2019-ish levels,” he said. “But now they’ve surpassed that.”
Wells Fargo economists note that other recently released data from the U.S. Department of Commerce shows record-high interest rates on credit, now north of 21% APR, are driving up the percentage of household budget outlays to service that debt.
The cost of carrying a balance month-to-month is mounting, and further increases in revolving credit balances could cause personal interest expenses as a share of income to climb closer to 3% from where it currently sits at 2.8% through November, according to a new Wells Fargo report. The last time interest expense as a share of income reached those rates was prior to the 2001 and 2008 recessions.
