Adjusted for Inflation, Levels of Credit Card Debt Aren’t So Bad

Headlines proclaiming record credit card debt levels in the U.S. may have elicited concern, but analysis from WalletHub reveals a more optimistic reality.

At first glance, it may seem that U.S. households are drowning in credit card debt, with a staggering $1.03 trillion owed as of Q2 2023. But, as WalletHub’s analysis of Federal Reserve Bank of New York data reveals, the impact of inflation can’t be overlooked when weighing the significance of these numbers.

Diving into the Figures

While credit card debt in the U.S. is at a record high, when adjusted for inflation, the narrative isn’t as ominous. According to WalletHub, total credit card debt is 18% below its inflation-adjusted peak, and the average U.S. household carried roughly $8,668 in credit card debt by the end of Q2 2023, which is “20% below the record on an inflation-adjusted basis.”

When inflation is accounted for, it becomes evident that previous periods in recent history have seen higher debt burdens. American households, on average, appear to be managing their credit card debt more responsibly than in the past, and the ratios of credit card debt to deposits and total household debt to deposits are on favorable trajectories.

“I’m cautiously optimistic about the economic environment going into 2024,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research. “The large bank delinquency rate has been increasing steadily, which we interpret as normalizing to pre-pandemic levels. However, as we discuss in our report “A Mid-Year Review of Credit Cards,” charge-off rates at small to mid-size banks are at highs unseen since 2009.”

There’s also an impending economic hammer that is about to drop this fall—student loan payments are set to resume after a three-year hiatus.

“We are about to see a significant shock to the market when student loan payments come due in October for the 44 million borrowers holding $1.57 trillion in debt. I fear that households have been making long term financial decisions, such as taking out auto loans, without budgeting for these extra payments,” Danner said.