The pandemic led to a decrease in credit card balances and delinquencies as consumers were flush with cash from stimulus checks. In Q2 2021, savings equaled $4.8 trillion, according to the Bureau of Economic Analysis. Credit card balances peaked at $927 billion in Q4 2019. By Q1 2021, balances were down 17% from their pre-pandemic peak.
Unfortunately, those stellar numbers didn't last long. Now that stimulus checks are drying up, consumers have reverted to swiping their cards more. As a result, credit balances have increased. And unfortunately, we're already back to those pre-pandemic peak levels.
Turbocharging the balance increases is high inflation. In Q3 2022, credit card balances hit $790.5 billion. By January of 2023, they had risen to $925 billion, according to LendingTree. What's astonishing about these numbers is that the total debt of the Great Financial Crisis was $870 billion.
The FED is trying to combat inflation by increasing interest rates. This has the effect of increasing mortgage rates, car loan rates, and credit card rates. In January 2022, the average credit card rate was 16.3%. By December 2022, the rate had risen to 19.6%, according to Bankrate.
WalletHub reported that the average credit balance in Q1 2021 was $7,576. It had risen to $9,223 by Q3 2022. The trend in rising balances does not seem to be stopping. Remember the consumer savings figure from above? In Q3 2022, it dropped to $507 billion. This is likely to keep consumers swiping credit cards rather than debit cards.
Inflation is hitting consumers where they have little wiggle room. Groceries, utilities, and housing have all risen. For example, in August 2020, the average price of Grade A Large eggs was $1.33. As of December 2022, the price had risen to $4.25, a more than 3X increase.
Dwindling savings and high inflation are set to continue driving higher consumer credit card balances in 2023.
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