Consumer credit card debt nears record high

To cope with rising prices, many consumers are looking to their credit cards.

Credit card balances grew year-over-year, reaching $841 billion in the first three months of 2022, according to data released Tuesday by the Federal Reserve Bank of New York.

Although sales have fallen slightly from their level at the end of 2021 after the peak holiday shopping season, they should continue to increase from here, according to researchers at the New York Fed.

“There’s a good chance that Americans’ total credit card balances will soon hit a new all-time high, marking a sharp reversal from the precipitous drop that occurred in 2020 and early 2021,” Ted said. Rossman, senior industry analyst at

Learn more about personal finance:
More Americans are running out of money as the cost of living rises
Why there’s pressure to forgive student loans but not other debt
Americans say inflation could have a ‘significant negative impact’

An additional 229 million new credit card accounts were also opened in the first quarter, up from the previous quarter and above pre-pandemic levels.

Many accounts have been closed during the pandemic, so it’s no surprise to see more new accounts now, according to New York Fed researchers.

However, rising borrowing, along with auto loans, student debt and mortgages, pushed total household debt to a record $15.84 trillion at the start of the year.

After consumers paid off $83 billion in credit card debt during the pandemic, helped by government stimulus checks and fewer discretionary shopping opportunities, credit card balances have steadily increased amid higher prices for gasoline, groceries, and housing, among other necessities.

“A lot of that is due to robust consumer spending, of course, but credit and debit cards have both been helped by the growth of e-commerce and the continued migration of cash,” Rossman said. “It’s great if you can pay in full, avoid interest, and earn rewards, but it can be very expensive if you pay interest every month.”

In fact, credit card rates will only rise as the Federal Reserve raises interest rates in an effort to reduce inflation, which is at its fastest pace in more than 40 years.

Since most credit cards have a variable annual percentage rate, there is a direct link to the Fed’s benchmark.

APRs are currently just over 16%, on average, but could well exceed 18% by the end of the year – which would be an all-time high, according to Rossman.

To date, the record is 17.87%set in April 2019.

“With runaway inflation and rising interest rates, things will get worse before they get better,” said Matt Schulz, chief credit analyst at LendingTree.

If you have a balance, try calling your card issuer to request a lower rate, consolidate and pay off high interest credit cards with a lower interest rate. home equity loan or a personal loan or switch to an interest-free balance transfer credit card, he advised.

“Consumers need to act now to reduce this credit card debt because it’s only going to get more expensive — and rushed,” Schulz said.

To develop better credit card habits, be sure to pay your balance on time and in full each month and only make purchases that you can afford to repay, noted Holly O’Neill, president of the bank of retail at Bank of America.

“Spending within your means will leave you with more money at the end of each month and help reduce your debt,” she said. “As a bonus, spending less than your limit will also help you build a stronger credit score.”

(Here’s why your credit score matters and five ways to improve it.)

Subscribe to CNBC on YouTube.