NEW YORK CITY, New York: A New York Federal Reserve report released this week indicated that Americans are struggling to keep pace with the high cost of living and are acquiring higher credit card debt.
According to the New York Federal Reserve, U.S. household debt surpassed $16 trillion for the first time ever during the second quarter of this year, and despite surging borrowing costs, credit card balances increased by $46 billion last quarter.
Over the past year, credit card debt has jumped 13 percent by $100 billion, the largest increase in more than 20 years.
The credit card binge partly reflects the fact that prices are rising at the fastest pace in more than four decades, the New York Fed said, noting, "The impacts of inflation are apparent in high volumes of borrowing."
High inflation is also making credit card debt more expensive because the Federal Reserve, which raised its benchmark interest rate by three-quarters of a percentage point last week for the second consecutive month, is aggressively raising borrowing costs, it added.
Last week, the Bureau of Labor Statistics said that high inflation is also forcing consumers to dip into their savings, with personal savings rates falling in June to 5.1 percent, the lowest since August 2009.
But despite rising debt levels, the New York Fed said consumer balance sheets appear to be in a "strong position" overall, stating, "Although debt balances are growing rapidly, households in general have weathered the pandemic remarkably well."
However, more and more lower-income and subprime borrowers appear to be currently struggling to keep up with their bills.
"With the supportive policies of the pandemic mostly in the past, there are pockets of borrowers who are beginning to show some distress on their debt," the report said.
However, credit reports indicate the number of new foreclosures increased by 11,000 during the second quarter, potentially signaling the "beginning of a return to more typical levels," the NY Fed added.