More Bad News On The Debt Bubble That’s About To Burst

Call it our monthly update on one of the most concerning aspects of our consumer economy. Still rapidly increasing credit card and other types of consumer debt. While the numbers vary slightly from source to source, they all tell pretty much the same story. And it’s not good. 

Big banks and other observers will tell you that, despite record levels of revolving debt, the American consumer is strong. While up, delinquencies aren’t out of control and the typical credit profile of people taking on this debt is relatively strong. The Juice thinks this represents a rose-colored view of the situation. 

Consider some of the latest data: 

• According to the St. Louis Fed, credit card debt hit roughly $988 billion towards the end of May. That’s a record. And up from approximately $860 billion around the time governments started issuing pandemic stay-at-home orders in 2020.  
• Credit bureau TransUnion blames inflation and consumers using credit to help manage their budgets. 
• TransUnion puts credit card balances at $917 billion for Q1, 2023. Down quarter over quarter (by -1.5%), but up 20% year over year. 
• There are 523.2 million credit cards circulating out in the wild, as of Q1, 2023, up from 492.5 million in Q1, 2022, and 459.6 million in Q1, 2000. 
• Unsecured personal loan balances hit a new high of $225 billion in Q1, up 26.3% annually. 
• Average credit debt per borrower was $5,733, as of Q1, up from $5,010 a year earlier. 
• Average personal loan debt per borrower was $11,281 in Q1 of this year versus $9,896 in Q1 last year. 
• Delinquencies of 90-plus days on credit cards hit 2.26% in Q1, up from 1.61% a year ago. 
• Delinquencies of 60-plus days on personal loans hit 3.91% in Q1, up from 3.25% a year ago. 

It’s alarming enough that many consumers appear to be using this debt to finance everyday life. However, it’s even more scary that they’re getting this debt thanks, in part, to their good credit. 

TransUnion’s report suggests that if originations come down (the number of credit card and personal loan originations moved into record territory since mid-2021), it’s likely because lenders have tightened their standards. If balances come down, it will be because credit is tougher to come by and/or consumers have slowed down their pace of borrowing and, subsequently, spending.   

Some of the most ominous data from TransUnion: The age groups carrying the biggest credit card balances are the ones nearing traditional retirement age. 

• The typical 40-to-49 year old had $7,600 in credit card debt, as of Q1, 2023, up from $6,400 a year ago and $7,300 just prior to the pandemic. 
• The typical 50-to-64 year old had $7,200 in credit card debt, as of Q1, 2023, up from $6,300 a year ago and $6,100 just prior to the pandemic.  
• The under 40 and over 65 age groups fared significantly better. The average credit card balances for these consumers look like this:
  • Under 29 years old: $2,900 in Q1. 
  • 30-to-39 years old: $5,800 in Q1. 
  • 65 and older: $4,700 in Q1. 

To make matters worse, the average interest rate on a credit card these days is around 20%, up from 16% one year ago. 

This is what we call a perfect storm. A confluence of factors that foretells nothing but bad news. 

The Bottom Line: It’s one thing to parlay your good credit into the best rate on a mortgage or even a car loan. It’s entirely another to be forced to use it – and risk it – to combat inflation and, surely in some cases, make ends meet. This has all the makings of a debt bubble bursting, as we have chronicled since last year, as the data has gotten gloomier and gloomier. 

Couple this with the reality that carrying debt can make it more difficult to save for retirement. In a country where people don’t have a ton of money saved for retirement to begin with, the debt crisis might as well go hand in hand with the retirement crisis. If you’re 40, 50 or 60 and using credit cards to subsidize your lifestyle, you’re putting your financial future – or at least comfort level come retirement age – at risk. Or worse.

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