Americans racked up a record $180 billion in new credit card debt in 2022

Americans racked up a record $180.3 billion in additional credit card debt last year as rampant inflation and declining savings rates forced many families to turn to lines of credit, according to a new study.

US credit card users ended 2022 with outstanding credit card debt of $1.18 trillion, an increase of 15% over the previous year, according to a study by WalletHub released on Wednesday.

In the fourth quarter alone, credit card debt rose $85.8 billion, the highest quarterly increase ever recorded, and the average household ended the year with $9,990 in credit card debt.

As the Federal Reserve raises its benchmark interest rate to combat inflation, variable credit card rates have risen along with it, making paying down debt more expensive.

If the Fed issues a larger 0.5 percentage point rate hike later this month as expected, it will cost credit card users $3.4 billion in additional interest payments over the next 12 months, according to another study for WalletHub.

The study rates the probability of a 50 basis point hike at the March 22 meeting at 70%, following a series of worrying data showing the fight against inflation may be at a standstill.

If the Fed issues a smaller 25 basis point hike this month, it would still cost credit card users an additional $1.7 billion in interest payments, according to the study.

Over the past year, the Federal Reserve has raised its policy rate from near zero to a range high of 4.5%, and the increase which WalletHub says will already cost the consumer about $30.4 billion in additional interest charges over the next few years. next 12 months.

The Fed’s rate hikes have hurt Wall Street and the housing market, but the central bank is trying to control inflation by cooling the economy through higher borrowing costs.

‘Workers have seen real wages fall for almost two years. Controlling inflation will help stabilize the purchasing power of ordinary families,” said Alexander William Salter, an associate professor of economics at Texas Tech.

For those who carry large credit card balances, the higher rates will mean a steeper escalation to get out of debt.

The Federal Reserve has raised its target interest rate by a quarter of a percentage point, slowing down from rapid hikes implemented last year.

“Wall Street probably won’t like it (tighter policy generally means less buoyant asset markets), but Main Street needs it,” he added of the Fed’s plans for further rate hikes.

But for those who carry large credit card balances, the higher rates will mean a steeper exit from debt.

WalletHub found that the city with the largest median household credit card debt as of the end of 2022 was Santa Clarita, California, with median debt of $19,036, followed by New York City with $18,525.

Lewiston, Maine, had the lowest median credit card debt at $8,200, and also saw the smallest increase in debt last year, increasing just $312 per household.