High inflation and rising interest rates have caused credit card balances in the US to increase to $931 billion as of year end 2022, according to the latest Credit Industry Insights report by TransUnion.
Additionally, the number of new credit cards opened increased by 7.4% over the prior year, setting another record..
“Bankcard balances and originations continue to climb as consumers seek ways to cope with inflation, and this is particularly the case among Gen Z consumers, who have seen growth of 19% in originations YoY and 64% in balances over the same period,” said Paul Siegfried, the senior vice president and credit card business leader at TransUnion.
Serious credit card delinquencies are expected to increase to 2.6% at the end of 2023, according to the 2023 Consumer Credit Forecast by Transunion. That’s up from 2.1% at the end of 2022. Delinquency rates could reach levels not seen since 2010.
“Rapidly increasing interest rates and stubbornly high inflation combined with recession fears represent the latest in a series of significant challenges consumers have faced in recent years,” Michele Raneri, the vice president of U.S. research and consulting at TransUnion, said in the forecast report. “It’s not surprising then to see pronounced increases in delinquency rates for credit card and personal loans, two of the more popular credit products.”
Many Americans tapped into their home’s equity to meet their financial goals and deal with inflation. Home equity lines of credit (HELOCs) increased 18% year-over-year in the third quarter, according to TransUnion. In fact, HELOC balances reached an all-time high of $20.2 trillion.
“HELOCs and Home Equity Loans continue to grow at unprecedented levels as homeowners increasingly take advantage of the record levels of tappable home equity they have built in their homes,” Joe Mellman, senior vice president and mortgage business leader at TransUnion, said in a statement. “The main reasons why homeowners utilize the equity available to them is to consolidate debt, home improvement and big ticket purchases.”
Nonetheless, many Americans are still optimistic.
“Despite a challenging macroeconomic environment, TransUnion’s new Consumer Pulse study found that more than half (52%) of Americans are optimistic about their financial future during the next 12 months,” TransUnion said in its forecast report.
As a bankruptcy attorney, one of the unfortunate things I often see, is when people take out home equity loans (or 401k loans) to pay off their unsecured debts, and then still go right back into debt. we can help with the unsecured debt, but the home equity loan is attached against your house, and a 401K loan has a payment that won’t go away as long as you work for that employer, so sometimes the more responsible thing to do is to just get rid of the unsecured debt with a bankruptcy, rather than digging a bigger hole.