The United States has seen record credit card debt due to inflation and stimulus spending

  • Americans’ credit card balances soared by $52 billion in the last three months of 2021.
  • Inflation is partially responsible, increasing the cost of food and gas.
  • Government aid money helped people pay off debts earlier in the pandemic, freeing up money for other purchases.

Americans have been using their credit cards at record speeds in recent months as rising inflation eats away at the savings people have accumulated during the pandemic.

Total US household debt reached $15.8 trillion in the fourth quarter of 2021, the New York Fed reported this week, recording a $333 billion increase from the previous quarter. Credit card balances alone reached $860 billion, up $52 billion over the same period. This is the largest quarterly increase the Fed has seen in 22 years of data collection, the researchers said, adding that the overall increase in debt was driven by home and car purchases.

“The total increase in nominal debt in 2021 was the largest we’ve seen since 2007,” Wilbert Van Der Klaauw, senior vice president of the New York Fed, said in a statement. “Aggregate balances of newly opened mortgages and autos have increased sharply in 2021, matching rising home and car prices.”

A year-end increase in debt is typical, according to the Fed, following a trend to pay it down in the first quarter of the new year. Overall, credit card balances are lower than before the pandemic, down $71 billion from the end of 2019. The recent acceleration in debt is likely due to inflation the fastest in decades, the Fed says, driving up the cost of everything from beef to furniture. Finally, Americans used pandemic-era government aid to pay off debt, meaning they had available credit to use for new purchases.

Inflation Drives Credit Card Debt, But Americans Are Paying It Off For Now

The consumer price index, a commonly used measure of inflation in the United States, rose 7.5% year-on-year in January, the Bureau of Labor Statistics reported this week. Economists say it’s unlikely to get worse in 2022, but it follows a year of inflation that has already pushed gas and grocery prices up faster than usual.

Also, real wages haven’t kept up with inflation, so people have less money to spend after paying their usual expenses, which is likely what accumulates credit card debt.

However, people seem to be paying their balances. Delinquency rates are low: Only 3.2% of credit card debt was past due for more than 90 paydays (what the Fed calls “serious delinquency”) at the end of last year, researchers find .

One question is whether this debt acceleration will last. The Fed said Tuesday that while it will surpass pre-pandemic levels by the end of 2021, the seasonality of credit card balances makes it difficult to predict.

Stimulus savings still influence how much money we need to spend

Savings from government stimulus measures during the pandemic may explain why people are spending more.

Many programs like Biden’s Child Tax Credit have now ended, but along with increased unemployment benefits and stimulus checks, these cash injections have helped Americans pay down debt. American households reported spending about 40% of their stimulus checks, on average, saving about 30% and using 30% to pay down debt.

“Overall, loans issued in 2021 are performing well, relative to other recent vintages,” the Fed said in a blog post. “Personal income has increased over the past year (and has been supplemented since the start of the pandemic by stimulus programs, including transfer payments to households), which has helped borrowers to make their payments at time.”

According to JP Morgan Chase, Americans saved more than ever, on average, which is true for all four income quartiles, and they also spent more overall.

December’s big debt jump appears to be fading, as Americans seek to go as far as their dwindling aid offer will take them.