Credit card and personal loan debt reached record levels in the third quarter of 2022, as consumers face higher costs of goods and services as well as higher interest rates, according to TransUnion data. These trends indicate that consumers are likely turning to credit cards and unsecured personal loans as a way to cover their expenses amid mounting financial pressures.1
“However, as long as employment numbers remain strong, there should continue to be a steady flow of customers seeking access to new credit products, credit cards and personal loans in particular, and concurrently, an ample supply of lenders willing to offer credit to them,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in a statement.
More consumers are gaining access to additional credit and financing lines as the U.S. employment scene remains strong. As the economy added 261,000 jobs in October, average hourly earnings increased 4.7% from a year prior.2
Credit card balances hit $866 billion in the third quarter, up 19% from the same quarter in 2021, according to TransUnion’s Quarterly Credit Industry Insights (CIIR) report. Among Gen Z and Millennial borrowers, credit card balances increased 72% and 32%, respectively. Balances for private label credit cards, or store-branded cards, were up 7% to $122.1 billion.
Meanwhile, total personal loan balances climbed to $210 billion, up 34% from the third quarter in 2021. Much of that growth was fueled by increases in lending to borrowers with subprime credit. The total number of personal loans hit 26.4 million, up from 21.6 million in the second quarter.
Delinquencies for most credit products were on par with pre-pandemic delinquencies, however they have been rising the past year, particularly among subprime borrowers.
High Inflation and Rising Interest Rates
The rising costs of goods and services, driven by higher costs in housing, food, and gasoline, is contributing to tighter consumer budgets. Consumer prices rose 7.7% year-over year in October, down from an annual growth rate of 8.2% in September, but well off the Federal Reserve’s target inflation rate of 2%.3
To try to combat high inflation, the Fed has been regularly increasing its benchmark interest rate. It raised its benchmark rate by 0.75% to a target range of 3.75% to 4% in November, making it the sixth rate hike of 2022.
When the Fed’s rate increases, interest rates on other financial products, such as credit cards and personal loans, often change in sync. For consumers, this means that the cost of financing is rising, which can cause financial strain.
