Credit card balances are up, but so are many borrowers’ paychecks.
U.S. consumers collectively owe an eye-popping $1.17 trillion in credit card debt — a record — according to estimates the Federal Reserve Bank of New York released this week. But while there are still major financial risks for carrying hefty balances, the researchers said the data suggests that “rising debt burdens remain manageable” for the typical consumer.
It’s a finding that might surprise voters fresh off an election in which a majority handed the federal government back to Republicans out of economic ire. But while major, chronic household costs continue to squeeze millions of families — especially those scraping by on lower incomes — President-elect Donald Trump is inheriting a robust overall economy fueled by consumers who keep on spending.
Prices are still going up, but they’re not going up as fast, and incomes are once again going up at a faster rate than expenses.
Bankrate chief financial analyst Greg McBride
What’s more, many are doing so without much serious financial fallout. A separate report this week from the credit rating agency TransUnion found that the growth in credit card delinquencies is slowing down, rising incrementally from the third quarter last year to the third quarter this year after much steeper run-ups previously.
A key reason for the improvements is pay.
Earnings growth has averaged 6.2% per year since the pandemic began, compared to the cumulative debt balance rising 4% per year. As a result, the debt-to-income ratio among U.S. consumers has steadily declined during the post-Covid recovery — from 86% in 2019 to 82% today, the report said.
That’s despite credit card balances surging to nosebleed heights, rising by $24 billion just in the third quarter, 8.1% higher than a year ago.
“The aggregate debt balance has continued to climb since the pandemic,” the New York Fed researchers said in an analysis of their findings. “However, during this same time, Americans’ disposable personal income has grown as well.”
And disposing of it they are. Retail sales rose by 0.4% in October, the Commerce Department reported Friday. That’s less than September’s upwardly revised 0.8% jump but still makes for a solid stretch of spending heading into the busy holiday shopping season.
Hourly earnings rose 0.4% last month, ahead of estimates, according to the Bureau of Labor Statistics, and the inflation rate has not exceeded the pace of wage growth since January 2023. That dynamic has left the median-income household financially better off than before the pandemic. The lowest average salary that Americans will accept from employers reached a new high of $81,822, the New York Fed reported this spring, keeping pressure on many employers to pony up even as the job market slows.
“When inflation was rising at a faster rate, and expenses were increasing more quickly than household incomes, oftentimes it was debt that bridged that gap,” said Greg McBride, chief financial analyst at Bankrate. “Now that inflation pressures have moderated, prices are still going up, but they’re not going up as fast, and incomes are once again going up at a faster rate than expenses.”
Even so, the New York Fed report highlights just how accustomed many Americans have become to living in the red. The data also raises questions about the effects of persistent debt on households of different means in an economy defined by vast wealth inequality, which still breaks heavily along demographic lines.
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“These aggregate measures don’t necessarily represent what is happening at the household level in terms of borrower income, race, and age,” the researchers noted, adding that delinquency rates remain elevated despite their slowdown, a fact that is still causing stress for many borrowers. “Debts — and incomes — are not distributed evenly over the population,” they said.
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For example, after the financial crises of recent decades, lenders increasingly tightened standards for mortgages toward older, higher-income borrowers with better credit scores, the report noted. So some of the improvements in how well households are handling their debt loads also reflects who’s getting access to credit in the first place.
TransUnion flagged a similar trend in its own findings, saying credit card issuers “in many cases have tightened underwriting standards which may have resulted in lending to borrowers less likely to grow balances quickly.”
“Lower-income borrowers bearing credit card and auto debt look very different than higher-income households with larger mortgages,” the New York Fed researchers added.
McBride said auto loans can be especially tricky to manage for consumers with tight budgets. Many borrowers are still financing larger-than-normal vehicle purchases due to post-pandemic sticker prices, he said, which could become unwieldy even with a decent car note.
“What that means is the balance declines more slowly,” he said. “Especially for higher-risk borrowers, credit card and auto loan delinquencies are the highest in a dozen years, and that’s with unemployment at 4%. Those numbers would go up in a big way if the economy hits the skids.”
CORRECTION (Jan. 27, 2025, 12:15 p.m. ET): A previous version of this article misstated a TransUnion statistic to indicate the slowdown in credit card delinquencies. They rose 2.43% in the third quarter of 2024 after rising 2.34% in the same period of 2023 — still an increase, but smaller than previous ones.
