Is One Trillion in Credit Card Debt Significant?

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2 min
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As the team's Capital Markets Analyst, Jacob conducts market and investment research and assists in the development of business strategy to serve our clients more effectively.
August 15, 2023

Last week total US credit card balances breached $1 trillion. That may seem like a lot but it’s actually not a huge problem or concern.

US credit card debt.

At 25% interest rates and $5,313 average balances. The typical credit card user will pay too much interest but this is lower than historical averages.

In the US credit card debt is just 6% of the total deposits households have in the bank, which is around the lowest percentage in 20 years.

In 2003 that number was closer to 12%.

Credit card delinquency it also around it’s lowest level in two decades.

And when compared to total household debt, credit card debt accounts for a mere 6%, and that is not expanding.

To put icing on the cake, households in the US have $12.5 trillion in mortgage debt and $28.7 trillion in homeowners equity.

“Strong home price appreciation in the years following the pandemic may be an underappreciated tailwind for the household sector … The total value of the U.S. single-family market breached $40 trillion last year, and the mix between debt and equity has shifted over time with the portion held by homeowners in the form of equity trending higher since about 2012.” Tim Quinlan and Shannon Seery wrote.

The reason all of this debt talk came about is because the New York Federal Reserve released US debt statistics.

US debt has been a major talking point over the last couple of months as Congress came within days of not raising the debt limit and Fitch downgraded the US’s status.

People and investors claim that the US needs to adopt better spending (meaning spend less) and borrowing habits (meaning borrow less), which is largely true. But I believe what the US needs even more is to be better stewards of the debt they are creating.

If the US takes on $2 trillion in debt and deficits to fuel economic growth, they grow out of debt. But the problem is they are taking on more debt to service existing debt.

All in due time, but so long as the US expands debt slower than other nations, and as long as the US remains an economic powerhouse there is no short term threat of the norm changing.

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