Will U.S. Credit Card Debt Reach $1 Trillion in 2023?

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It’s already close to an all-time high. 

Credit card debt is on the rise, and there’s a strong chance it reaches record highs. According to the Federal Reserve Bank of New York, total U.S. credit card balances reached $925 billion in the third quarter of 2022. That’s just under the all-time high of $927 billion from the fourth quarter of 2019.

While consumers tightened up spending on their credit cards due to the COVID-19 pandemic, it’s now trending upwards again. And unless inflation slows down more quickly than expected, things will likely get worse before they get better.

Will U.S. credit card debt reach $1 trillion in 2023?

With the way the numbers are looking, U.S. credit card debt could easily hit $1 trillion in 2023. Based on normal quarterly trends, it’s most likely to happen in the second half of the year.

In most years, credit card balances as a whole follow a straightforward pattern. They start comparatively low in the first quarter and increase throughout the year, peaking in the fourth quarter. Balances then drop for the first quarter of the next year, and the pattern continues.

For example, in 2019, balances started at $848 billion and ended at $927 billion, an increase of $79 billion. Then in the first quarter of 2020, they totalled $893 billion, a decrease of $34 billion.

The alarming part is that balances are increasing much more than in years past. Here are a few data points to illustrate this:

The increase from the third quarter of 2021 to 2022 was 15%. That’s the largest year-over-year increase in more than two decades.Balances have already increased by $84 billion in 2022. That’s more than they increased in all of record-setting 2019, and there’s still a quarter to go.

The most likely reason for these huge increases is, as you may have guessed, inflation. At one point in 2022, inflation hit a 40-year high. It’s probably no coincidence that credit card debt jumped as the cost of living surged.

On a positive note, inflation is finally slowing down. Monthly readings on the Consumer Price Index were trending down in October and November. We still have a long way to go, but there’s hope the cost of living will be much more affordable by the middle of 2023.

So, we’ll probably see even higher credit card balances when the numbers for the fourth quarter of 2022 are out. However, it’s doubtful they’ll reach $1 trillion this year. That would be a huge jump, plus reports indicate that credit card spending is down this holiday season. With any luck, balances will decrease in the first quarter of 2023. From there, it will depend on whether inflation cools off and if consumers are able to keep their credit card balances from rising.

How to manage credit card debt

As the latest data demonstrates, credit card debt is a serious issue, and Americans are accumulating more and more of it. That’s why it’s more important than ever to know how to handle credit card debt.

The first thing to do is make sure you’re using the right type of credit card. If you know you’ll need to rely on credit cards for a while, see if you can get a 0% APR credit card. These cards have a 0% intro APR on purchases, meaning you aren’t charged interest on purchases during the intro period. You’ll at least have some time when you can carry a balance without racking up costly interest charges.

If you have balances to pay off, look into balance transfer credit cards. These have the same type of perk, a 0% intro APR, only it applies to balance transfers. That means you can transfer over debt from cards with high interest rates and pay it down during the intro period without interest charges. Another option to save money while paying down credit card balances is a debt consolidation loan.

Those are all ways to at least save some money if you need to carry a credit card balance. They don’t solve the problem, though. As soon as you’re able to, you’ll need to put any extra cash you can make each month toward that debt. The best way to eliminate credit card debt is to pay as much as possible toward it on a consistent basis.

Of course, if you don’t have any credit card debt, you’re in a good position and should aim to stay there. Continue paying off your cards in full every month and avoid overspending. While you can use credit cards to finance expenses when necessary, this is something to only do as a last resort.

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