Americans' use of credit cards for essentials sends debt to high

Jamie, 33, lives in Manhattan, but often goes across the Hudson River to New Jersey in pursuit of cheaper food — and he uses his credit card to pay for it.

"My cash will only go so far, so I must turn to plastic," he told China Daily. "And yes, that bill is also going up."

Jamie and millions of other Americans are swamped by credit card debt, with the latest total balance nearing $1 trillion.

US consumers now owe $986 billion on their charge cards, according to Federal Reserve Bank of New York data released Monday. That's a 17 percent jump from a year ago and a record high.

The debt keeps piling up partly because high inflation is forcing people to use their credit cards to pay for necessities such as rent and food, financial experts said.

"High inflation is certainly contributing to Americans' high credit card balances, along with record high interest rates," Ted Rossman, senior industry analyst at Bankrate, told CBS News. "More than a third of US adults have more credit card debt than emergency savings, the highest since we started tracking this in 2011."

Speaking of interest rates, they add to the hefty cost for those who carry balances on their credit cards.

The average credit card interest rate on new cards was 20.68 percent as of May 10 — an all-time record, according to the latest survey by CreditCards.com. That represents an increase of 4.51 percentage points since March 2022.

Credit card interest rates rise along with the federal funds rate, which the Federal Reserve has increased 10 times since March 17, 2022.

During the first quarter, every major category of consumer debt spiked from the previous quarter, with larger and new record balances for mortgages, auto loans, student loans, retail cards and other consumer loans.

Americans now have more than $12 trillion in mortgage debt, the biggest contributor to debt in the first quarter of 2023, followed by student loans. Americans are carrying $1.6 trillion in student loan debt, according to the Federal Reserve Bank of New York report.

The escalating rise in prices is "definitely impacting my life", Brooklyn resident Chris McKinney told China Daily. "Every bakery, grocery store and restaurant I go to, I see prices going up. I'm trying to spend less, going out less, and trying to have more thoughts about where I go and what I choose to spend money on."

McKinney, 25, has a $25,000 student loan to pay; he is also helping his parents to pay their debt.

In the first three months of 2023, total US household debt rose by $148 billion and has reached a record $17.5 trillion, up 0.9 percent from the fourth quarter of last year, the New York Fed said.

Notably, credit card balances remained level from the fourth quarter of 2022 to the first quarter of 2023. That figure usually falls in the beginning of the year, as borrowers start paying down debt after the peak holiday shopping season. So this means that US households are depending on their credit cards for daily spending.

"This is the first time in 20 years we are not seeing a decrease," according to New York Fed researchers, citing inflation and a higher cost of living, CNBC reported.

During the first year of the COVID-19 pandemic, Americans benefited from government support and were able to pay down their credit card balances, said Charlie Wise, TransUnion's senior vice-president of research and consulting.

Consequently, lenders became more generous in their lending criteria, leading to a significant increase in the number of individuals with credit cards or personal loans, he told Yahoo Finance.

The number of borrowers with at least one credit card and carrying a balance grew 10 percent to 165 million in the first quarter from 150 million in the first quarter of 2021. The number of consumers with a personal loan jumped almost 18 percent to 22.4 million from 19 million during the same period, Yahoo Finance reported.

During the first quarter of 2023, the average credit card debt per borrower amounted to $5,733, while the average personal loan balance per borrower reached $11,281, nearly 16 percent of the US median household income of $70,784, according to a quarterly report on the credit industry from TransUnion.

Heng Weili in New York and agencies contributed to this story.