Consumer Debt Tops $5 Trillion for First Time Ever

Mike Maharrey Mike Maharrey

Mike Maharrey

January 9th, 2024 Comments

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Consumer debt topped $5 trillion for the first time ever in November as Americans continue to kick the financial can down the road as they cope with rising prices using credit cards with soaring interest rates.

Meanwhile, borrowing for big-ticket items has cratered, a bad sign for an economy that depends on people spending money.

Total consumer debt rose by $23.7 billion in November, according to the latest data from the Federal Reserve. That represents a 5.7 percent annual increase.

The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, U.S. households are buried under a record level of debt. As of the end of the third quarter, total household debt stood at $17.29 trillion.

As prices skyrocketed last year, Americans blew through their savings to make ends meet. Aggregate savings peaked at $2.1 trillion in August 2021. As of June, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.

In other words, Americans ran through $1.9 trillion in savings in just two years. 

Then they turned to credit cards.

Credit card spending slowed through the fall, but Americans burned up the plastic with a vengeance in November. Revolving credit, primarily made up of credit card debt, rose by $19.1 billion, a whopping 17.7 percent increase. 

To put the percentage increase into perspective, the annual increase in 2019, prior to the pandemic, was 3.6 percent.

Americans now owe just over $1.3 trillion in revolving credit.

By and large, Americans kept their credit cards in their wallets and paid down balances during the pandemic in 2020. This is typical consumer behavior during an economic downturn and the trend was even more pronounced with pandemic stimulus checks. Credit card balances were over $1 trillion when the pandemic began. They fell below that level in 2020 with an 11.2 percent drop. We saw small upticks in credit card balances in February and March of 2021 as the recovery began, with a sharp drop in April as another round of stimulus checks rolled out. But Americans started borrowing in earnest again in May 2021 and have added billions to their credit card balance month after month ever since.

The bigger problem is the double whammy of rising debt and interest rates. Average credit card interest rates eclipsed the previous record high of 17.87 percent months ago. The average annual percentage rate (APR) currently stands at 20.74 percent.

That underscores the fundamental problem of running an economy on credit. It’s expensive and credit cards have an inconvenient thing called a limit.

We’re already seeing consumers laboring under the strain of rising debt levels with more and more Americans struggling to pay their credit card balances. In August, the number of Americans rolling credit card debt from month to month rose higher than the number of people paying their bills in full for the first time ever.

What we have not seen in the past is there are more revolvers than transactors,” JD Power managing director of payments intelligence John Cabell told Yahoo Finance. “It’s inflation, it’s savings dwindling, we’re also seeing rising interest rates, which makes it harder to pay off that balance because it’s getting bigger.

The rising number of delinquent accounts also indicates people are having a hard time keeping up with credit card payments. The number of accounts past due by one cycle has increased by 42.6 percent over the last two years. Delinquencies have crept up to the highest level since 2017.

The mainstream is banking on a “Goldilocks” scenario where consumer spending slows enough to tamp down price inflation but not enough to spin the economy into a recession. Economist Carl Weinberg told CNBC there is a “non-trivial risk” that consumers have borrowed themselves into trouble.

Real incomes have just started coming back again, and not by nearly enough to cover some of the increases in the debt burdens that we’re seeing. So, credit to the household sector, consumer credit cards, that’s where the downside risk is. That’s where the risk to this Goldilocks forecast is, and I’m watching it.

History makes it clear that the Federal Reserve has a hard time normalizing rates. In fact, the attempt to bring rates from around 1 percent to just over 5 percent in 2007 led to the greatest recession since the Great Depression. 

That raises an important question: why should we believe that the Fed can normalize rates now without similar consequences? There is even more debt and more malinvestment in the economy today than there was then.

Spending on big-ticket items has already plunged. Non-revolving credit, primarily made up of auto loans, student loans, and loans for other durable goods, rose by just $4.6 billion, a small 1.5 percent increase. That follows on the heels of a 0.9 percent increase in October.

On average, non-revolving debt has increased by 5 percent on an annual basis.

The plunge in non-revolving credit indicates consumers have cut back spending on big-ticket items. That could signal that the economy is slipping toward a recession even as Americans continue to run up high-interest debt on their credit cards.

There’s a word for this – unsustainable.

This consumer credit report is the worst of both worlds. It shows that “resilient” American consumers are buried up to their eyeballs in debt. But borrowing and spending is the lifeblood of this bubble economy and credit cards may be close to maxed out.

Mike Maharrey

About the Author:

Mike Maharrey is a journalist and market analyst for with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.