Americans are struggling to keep pace with the high cost of living and are acquiring higher credit card debt, according to a report released by the New York Federal Reserve this week.
The New York Federal Reserve said that the U.S. household debt was at $16 trillion for the first time in the second quarter of this year, despite surging borrowing costs, credit card balances increased by $46 billion last quarter.
Credit card debt has jumped 13 percent over the past year by $100 billion, the largest increase in more than 20 years.
The New York Fed said that the impact of inflation is evident in high volumes of borrowing, due to the fact that prices are rising at the fastest pace in more than four decades. The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point last week for the second consecutive month, making credit card debt more expensive, it added, because high inflation is making credit card debt more expensive.
In June, the Bureau of Labor Statistics said that high inflation is also forcing consumers to dip into their savings, with personal savings rates falling to 5.1 percent, the lowest since August 2009.
Consumer balance sheets appear to be in a strong position despite rising debt levels, the New York Fed said. Although debt balances are growing rapidly, households have weathered the epidemic remarkably well. More and more lower-income and subprime borrowers seem to be struggling to keep up with their bills.
There are pockets of borrowers who are beginning to show distress on their debt, despite the supportive policies of the pandemic mostly in the past, according to the report.
Credit reports indicate that the number of new foreclosures increased by 11,000 during the second quarter, potentially signaling the beginning of a return to normal levels, according to the NY Fed.