Americans are facing a credit card debt crisis

• US consumers are struggling with soaring credit card debt and rising interest rates.
• Experts said the debt increase is the most concerning for younger adults.

Consumer spending helped keep the US economy afloat in 2023, but some cracks could be starting to show.

Credit card debt is now at record levels, and interest rates on those cards have soared. The result is that delinquent balances on debts, in general, and credit cards, specifically, are skyrocketing, and a rising number of Americans are now trying to find a way out as the US faces a credit card crisis.

According to data provided to Business Insider by Money Management International (MMI), a nonprofit credit counseling agency, the number of Americans who sought counseling for their debt soared after the holidays in January.

While the chart above looks most problematic for people in their 30s and 40s, an age group that touches both millennials and GenX, Thomas Nitzsche of MMI noted they are most worried about people in their 20s, Gen Z and younger millennials.

This group represented the fewest counseling cases in early 2022 but has recently effectively matched people in their 50s and only trail people in their 30s and 40s.

"We're especially concerned with the increase among young adults in their 20s," Nitzsche told Business Insider. "We expect this to continue as student loans come back online, interest rates and balances are elevated, and the cost of living remains high."

The US is facing a credit card crisis

It should come as no surprise that the number of people worried about their debt is rising.

According to the Federal Reserve Bank of New York, total household debt in the US has risen more than 24% since before the pandemic in 2019 and now sits at $17.5 trillion.

Of that total debt, credit card balances are growing the fastest. Americans owe a record-high $1.13 trillion on their credit cards. That total increased by 4.6% in the third quarter of 2023 — the ninth straight quarter with a rise — even before the holidays, and faster than the overall debt growth rate of 1.2% in that period.

According to a Fortune calculation using data from the Federal Reserve Bank of New York in Q2 of 2023, the average credit card balance was $5,733 per cardholder, while the average for those who do not pay off their balance every month is much higher. According to a Bankrate survey in November, only 49% of Americans carry a credit card balance month-to-month.

Americans are also struggling to pay their credit card bills on time more than other types of debt. According to the Fed, more than 6% of all credit card balances are in serious delinquency, more than double the rate seen just two years ago and still rising.

According to Ginger Chambless, the head of research for JPMorgan Chase, this represents a shift from mortgage delinquencies to credit cards.

"In the 2005-2010 period, there was a lot more delinquencies in mortgage debt, which is about 65% to 70% of overall household debt," Chambless told Business Insider. "In recent years, mortgage delinquencies have stayed very low as they are largely locked in at low fixed rates."

This can be seen in the chart below. During the subprime housing crisis, from roughly 2007 through 2010, mortgage delinquencies, and hence total delinquencies, rose faster than credit cards and even fell slower after the peak.

We are now seeing the same trend in credit cards, with delinquencies rising much faster than overall debt.

While this could create a parallel between today's credit card crisis and the mortgage crisis of 15 years ago, there are a few important differences today. Employment is strong and real wages have risen in recent years. Additionally, failing to pay a credit card bill will not likely result in losing your home and the years of equity you've paid into it.

Still, the rise in credit card debt and delinquencies could point to cracks in the strength of Americans' spending power.

Interest rates are not helping

What makes the credit card situation worse is that not only is debt soaring, but so are interest rates.

The Federal Reserve started hiking rates in March 2022 to get inflation under control. Credit card interest rates, already at their highest level since the mid-1990s, started soaring even higher.

Based on current balances and interest rates, which have exceeded 30% in some cases, the average American spends $1,140 every year, or about 2% of their pre-tax income, on credit card interest and fees alone.

And all of this still doesn't consider the growing "phantom debt" of buy now, pay later payment plans. Americans are increasingly turning to these plans over credit cards, but we don't know the full extent of this burden on the American consumer since these loans are often not reported to credit agencies.

A December report from Wells Fargo found that buy now, pay later balances were about 2.5% the size of credit cards in 2021, up 1,000% from 2019.

The use of buy now, pay later soared even more this past holiday season. According to Adobe, which tracks online sales, buy now, pay later plans use was up 47% on Black Friday and 43% on Cyber Monday.

Many people are confident that the US economy has successfully avoided a recession — although some are still worried. But while a credit card crisis may not weigh as heavily as the mortgage crisis of the late 2000s, there are signs that the soft landing could be rougher than hoped.

Are you struggling with credit card debt or taking on extra jobs to pay your bills? Contact this reporter at cgaines@businessinsider.com.