Credit-card balances increased every quarter in 2021 to end the year at $856 billion, the Federal Reserve Bank of New York said Tuesday. The fourth-quarter gain was the largest in figures dating back 22 years, and while the total amount is still below pre-Covid levels, the gap is closing rapidly.
As prices of new and used cars have soared, buyers have borrowed larger amounts to finance the extra costs. This will create a longer-term financial burden for households stuck with large loan payments even as prices of used vehicles start coming down from their peaks.
“This is especially a risk for these borrowers who would find themselves owing significantly more on their cars than they are worth if and when used car prices normalize, particularly as the increase in used motor vehicle prices may prove unsustainable,” New York Fed economists said in a blog post.
The U.S. Federal Reserve is poised to increase interest rates this year to help fight decades-high inflation in the country. This will make it harder for Americans to pay down their credit-card debt, according to Ted Rossman, senior industry analyst at Bankrate.com.
The average credit card charges 16.28%, according to Bankrate. “That could easily be over 17% by the end of the year,” Rossman said. “Roughly half of credit cardholders carry debt from month to month. This is really expensive debt.”
