America's $1 trillion credit card bill really isn't as bad as it seems

• US credit card debt hit $1 trillion for the first time ever this year.
• That's actually not excessive when considering factors like wage growth, experts told Insider.

America's collective credit card bill has never been higher — but despite the eye-popping dollar amount, the consumer debt situation isn't as bad as it seems, experts told Insider.

The $1 trillion milestone for US credit card debt was met with concern from commentators earlier this year, who feared that Americans' spending habits are becoming unsustainable, especially amid dwindling pandemic savings and an uncertain economic outlook.

To be sure, $1 trillion is a lot, but that figure needs to be examined in the context of other factors, like income and wealth, economists say. And with those considerations, the hefty credit card balance in the US actually isn't much of a problem.

"In aggregate, I think consumers are in good shape and they have not overborrowed," Mark Zandi, the chief economist of Moody's Analytics, told Insider. "Low-income households, less true. They've been more stretched and having more difficulty. But in aggregate, consumers are in a pretty good spot."

That could spell good news for the economy, as Wall Street forecasters have warned that the weakening American consumer could pose a huge vulnerability to economic growth. Americans are set run out of their excess savings by the end of this quarter, according to the San Francisco Fed – an event some analysts have said could raise the risk of a recession.

But there are five signs those concerns are misplaced – and consumers and the economy are doing just fine.

1. Spending growth has remained stable, despite blowing past the $1 trillion milestone

The nominal figures behind the total credit card balance are misleading, especially when you adjust for inflation. Real consumer spending growth has actually stayed stable at around 2% for the past few years, Zandi said. That's a healthy pace – strong enough to sustain economic growth this year, but not so strong as to overheat the economy and stoke higher inflation.

"I think consumer spending has been exactly where it needs to be," Zandi told Insider. "It's actually quite incredible how consumers have calibrated their spending. Not too much, not too little, just right, exactly what you want to see."

2. Credit card utilization is low

Credit use is actually fairly modest in the grand scheme of things, Zandi says.

According to Michele Raneri, the vice president of financial services research at Transunion, credit card utilization has stayed around 22%. That's a fairly sustainable ratio, as it means Americans have room to tack on more to the credit lines should an unexpected emergency come up.

"And even more recently, they've started to pull back in significant part because they don't need the cash as much as they did a year ago because inflation has declined and wage growth is stronger than inflation," Zandi added.

Americans' real incomes are also rising, Zandi said, which can help consumers build wealth and slow down their credit usage. Real hourly wage growth accelerated 0.5% year-over-year during the month of August, the Bureau of Labor Statistics reported.

3. Some of the debt is being fueled by first-time credit card holders

GenZ is a big contributor to the latest surge in credit card debt – which is normal, Raneri said, since that generation is at the age where many are starting to get access to credit for the first time. Gen Zers are also not high-income earners – so it makes sense that they're making more use of credit cards, which helps young consumers stretch their spending and keep up with the pace of inflation, she added.

Total balances on credit cards held by Gen Z were up 52% to $55 billion over the past year, according to second quarter TransUnion data, though total balances across all US card holders was up just 17% to $963 billion. That's the fastest credit growth rate of growth out of any generation, with Gen Zers contributing around 17% of all new US consumer debt added over the past year.

4. Americans are cushioned with tons of equity

Though some lower-income consumers are in danger of defaulting or slipping into delinquency on their credit card debt, Americans are shored up with tons of equity, Raneri said, mainly in the form of rapidly appreciation home values. In fact, LendingTree noted this summer that Americans are sitting on a whopping $$28.7 trillion of home equity that can be tapped if needed, and Wells Fargo has said that the huge run up in home prices in recent years could keep consumers afloat in the event of a downturn.

There are also fewer new loans being issued now compared to more distressed periods like 2008, for instance – which is why Raneri doesn't see any risk of another crisis resulting from consumer debt.

"There's a cushion there that consumers can still use to absorb as they repay the debt that they've got or straight out what their spending is," she added.

5. Delinquencies are slowing

The delinquency rate on credit card loans rose to just 2.77% over the past quarter, according to Fed data. That's only fractionally higher than the delinquency rate in the second quarter of 2019, before the pandemic, and it's well-below the delinquency rate during the 2008 crisis, which saw credit card delinquencies peak at 6.77%.

Lenders are also tightening their underwriting standards before doling out cash, Zandi said, which should help the delinquency rate decrease in the future. Already, the delinquency rate on loans issued in 2023 is lower than the delinquency rate on loans issued in 2021 and 2022. That suggests credit card delinquencies will soon peak around the fourth quarter of this year before declining, he estimated.

In fact, Zandi doesn't see America's spending boom as a problem unless the US has a recession, which could spark job losses and cause delinquencies to rise. But that isn't his expectation over the next year:

"I think the economy will be resilient enough, in part because consumers are in such good financial shape in aggregate, that we won't suffer a recession between this time and the end of 2024," he said – all good news for the private debt picture.

Government debt is a different story. The US debt balance just notched $33 trillion for the first time ever, something economists have warned could blow up into a bigger problem in the future.