Credit card balances in the United States reached a new milestone in the fourth quarter of 2023, exceeding $1 trillion for the first time, according to a report by TransUnion. The report also revealed that balances increased by 13% from the previous year, with subprime balances growing by 32% to $105 billion. Despite the Federal Reserve raising interest rates to combat inflation, the average credit card balance rose to $6,360, while interest rates on credit cards soared to over 27%.
In addition to credit card debt, Americans also increased their unsecured personal loan balances in the fourth quarter. Personal origination balances topped $245 billion compared to $222 billion the previous year, despite a slight dip in originations as lenders tightened borrowing criteria.
The surge in debt has had a significant impact on Americans' ability to save for emergencies. A recent survey by Quicken found that 54% of middle-class Americans and 56% of younger Americans said their current savings would not last more than three months if they lost their source of income. Rising inflation and costs have made it challenging for consumers to build emergency savings, with over 50% citing inflation as their top financial concern.
To help alleviate high-interest debt, consumers may consider using a personal loan to consolidate payments at a lower interest rate. Credible offers a platform where individuals can find personalized interest rates without affecting their credit score.
As Americans navigate the challenges of increasing debt and rising costs, financial experts recommend having three to six months' worth of living expenses in emergency savings. With the potential for Federal Reserve interest rate cuts in 2024, consumers carrying high credit card balances may have the opportunity to lower their monthly payments by refinancing into a lower interest product. By understanding their credit scores and exploring lower-interest options, consumers can position themselves to take advantage of potential rate decreases in the future.