This Number Is Trouble

Shah Gilani|September 20, 2024

$1.142 trillion.

That’s a big number. And when numbers are that big… they lose all meaning.

1.142 trillion gallons of water would fill more than 1.7 million Olympic swimming pools.

1.142 trillion grains of sand would cover 4.5 square miles of beach.

It would take more than 31,000 years for a person’s heart to beat 1.142 trillion times.

Like I said… a big number.

And as of the second quarter of 2024, $1.142 trillion is the amount of U.S. credit card debt.

That’s the highest balance since tracking began in 1999…

And it’s trouble.

A Dramatic Rise

The surge in credit card debt has been nothing short of dramatic.

Since the first quarter of 2021, Americans have amassed an additional $372 billion in credit card debt. That’s $215 billion higher than the previous record set in 2019.

The average credit card debt per American adult now stands at $6,501.

This growing burden is made worse by sky-high interest rates. The average credit card APR is a staggering 21.51%.

Consumers increasingly rely on credit to finance their spending. We’re entangled in a web of debt that will become increasingly sticky to manage.

Right now, the delinquency rate for credit card payments is at 3.25%. That’s up from 3.15% in the first quarter. It’s is the highest delinquency rate since the fourth quarter of 2011.

Clearly… as consumers take on more debt, it’s getting harder to make timely payments.

Rising delinquency rates are the canary in the coal mine. Consumers who struggle with debt are less likely to engage in discretionary spending. Given that this spending makes up two-thirds of our economy… growth will slow.

But it’s not just credit card debt that’s a festering wound.

A Bleak Picture

Overall, total consumer debt reached $17.8 trillion in the second quarter of 2024, up 9.86% over last year. Total consumer debt includes student loans, personal loans, and mortgage debt.

There are increases across the board…

• Average federal student loan debt stands at $37,853, up 2% over 2023
• The average personal loan debt per consumer was $19,402 in 2023, a 6.3% increase over 2022
• Average mortgage debt clocked in at $244,498 in 2023, up 5% over 2022
• Auto loan debt reached an average of $23,792 per consumer in 2023, up 5.2% over 2022.

These figures paint a bleak picture of American consumer finances.

If spending slows or hits a wall, the economy could follow suit, creating a vicious feedback loop.

The Federal Reserve has attempted to mitigate economic downturns in the past by cutting interest rates to stimulate spending. That’s one reason they just cut the fed funds rate 50 basis points.

But in a landscape overrun with record consumer debt and rising interest rates, cuts may no longer be effective. If consumers are already maxed out on credit, lower rates may not translate into increased spending. Instead, consumers may prioritize paying down existing debt over new purchases, further slowing economic activity.

With the average APR for credit cards now exceeding 21%, many consumers are likely to experience significant financial strain, limiting their willingness or ability to spend. In such a scenario, even aggressive monetary policy by the Fed may fail to stimulate the economy effectively.

After all, it took years for consumer spending to come back after the Fed cut rates to near-zero after the 2008 Financial Crisis.

The current state of consumer debt poses a significant risk to the broader economy. With credit card debt at an all-time high, rising delinquency rates, and a heavy burden of overall consumer debt, the foundations of economic growth are increasingly precarious.

Should consumer spending hit a wall, the repercussions could be huge.

We could see an economic downturn and market correction that the Fed will be powerless to fix.

But we’ll be prepared.