Credit card balances grew to a record $1.08 trillion in the third quarter. Here's how we got here

According to a new report from the Federal Reserve Bank of New York on household debt, Americans now owe $1.08 trillion on their credit cards.

According to the Federal Reserve Bank of New York, credit card balances increased by $154 billion on an annual basis, marking the largest annual increase since 1999.

"Credit card balances increased significantly in the third quarter, consistent with high consumer spending and real GDP growth," said Donhun Lee, a senior economic research advisor at the New York Fed.

The New York Fed's data also revealed that credit card delinquency rates increased across the board, especially among millennials or borrowers aged 30 to 39 who are burdened with high levels of student loan debt.

As most people feel the strain of high prices, particularly for food, gas, and housing, more credit card holders are carrying balances or falling behind on payments month to month, with a higher percentage of balances being more than 180 days delinquent, according to a separate report from the Consumer Financial Protection Bureau.

"It's a big deal," said Ted Rossman, a senior industry analyst at Bankrate. "Your credit card is likely your most expensive debt by a long shot."

Credit card rates exceed 20% Credit card rates were already high, but they have recently surged along with a series of 11 interest rate hikes by the Federal Reserve, including four in 2023.

As most credit cards have variable rates, they are directly tied to the Fed benchmark. As the federal funds rate increased, so did the prime rate, and credit card rates followed suit.

The average annual percentage rate (APR) currently exceeds 20%, which is also a historical high.

Why credit card debt keeps rising According to Matt Schulz, Chief Credit Analyst at LendingTree, consumers often turn to credit cards, despite the high cost, partly because they are more accessible than other forms of credit. However, this comes at the expense of other long-term financial goals, he added.

"These dollars aren't going into a college fund or a down payment on a house or a Roth IRA," he said.

Until recently, most Americans benefited from some of the government's social safety net programs, primarily large financial stimulus injections, which left many households with cash reserves that allowed some cardholders to keep their credit card balances in check.

But this cash reserve has largely been depleted as consumers gradually spent their excess savings accumulated during the pandemic years.

Now, "consumers are maintaining their lifestyle by using credit card debt," said Howard Dvorkin, a certified public accountant and chairman of

"It's been a struggle," said 25-year-old Adriana Cubillo of Modesto, California. "My rent keeps going up, so even though all my bills are paid, sometimes I live paycheck to paycheck."

Nevertheless, consumer credit scores remain high, aided by a strong labor market, declining inflation, and the removal of some medical debt data from credit reports, as recent reports have shown.