HARRISBURG — Credit card debt in the U.S. is at an all-time high and in Pennsylvania where such debt plummeted in the pandemic’s first year, consumer account balances have since surged.
An analysis by the Federal Reserve Bank of New York found that entering the fourth quarter of 2023, credit card balances nationwide reached a record $1.08 trillion.
That debt was falling in Pennsylvania in 2020, dropping 11.3% from the year prior as COVID-19 stimulus payments helped buoy bank accounts, according to the commonwealth’s Independent Fiscal Office (IFO).
The drop was short-lived. Credit card debt is up 14.3% year over year through the third quarter and outstanding balances are now 12.4% higher than pre-pandemic levels, the IFO found.
“Consumers likely wanted to clear some room on their cards in case they needed to use it later. Plus, the interest rate charged on credit card debt was much higher than what could have been earned in a savings account, so it made sense to pay the balance down,” said Matthew Knittel, director of the IFO. “Since then, balances have continually trended up and now surpass the pre-COVID amounts.”
Auto and mortgage loan debt is rising much slower and student loan debt is down just slightly. All combined, Pennsylvania consumer debt is up 3% so far this year which is trailing the 4.3% increase nationally.
Whatever concerns rising credit card debt might bring, it hasn’t slowed holiday spending. An analysis by Adobe Analytics shows online spending on Black Friday was up 7.5% and proved even better on Cyber Monday, growing 9.6%.
For the five-day shopping period beginning on Thanksgiving, online sales totaled $38 billion, a year-over-year increase of 7.8%.
“Not only do we have a record level of consumer debt, now we have record levels of holiday spending on top of that,” said Bruce McClary of the National Foundation for Credit Counseling.
Looking more closely at the Adobe data, McClary pointed out that consumers are frequently using buy-now, pay-later options this holiday season. Deferred payment purchases grew 48% above 2022, he said, and the number of items per order is up 11%.
That holiday spending is up isn’t surprising, McClary said, it’s the magnitude of the increases that’s been eye-catching.
“It’s probably as costly as it’s ever been to carry credit card debt at this time. Yet, this is a time when consumers collectively carry the most,” McClary said.
‘Very freeing’
Holiday shopping might be, for most, the fun way to spend and as the data shows, an easy way for credit card debt to balloon.
That wasn’t the case for Amy Shofran, a nurse working in utilization management in the Lehigh Valley. Following a divorce, Shofran and her two children moved into a new home. That meant a new mortgage. In time, she left a prior nursing job in a hospital to work as a school nurse. That meant a pay cut.
About 18 months went by and Shofran realized she was in over her head after amassing credit card debt not by spending on the fun stuff, but by spending on necessities. Home heating oil proved the most burdensome, she said.
According to Shofran, her interest payments alone reached $400 monthly. The debt surpassed $21,000.
“It made me sick to my stomach. I wouldn’t even open my bills sometimes,” Shofran said. “I was never going to get it low enough that I wasn’t paying that crazy interest charge every month. It was terrifying. I got a second job. I just wasn’t catching up.”
Shofran sought guidance through a credit counseling service, Money Management International (MMI), a nonprofit organization belonging to the Financial Counseling Association of America.
MMI helped negotiate a 5% interest rate amongst creditors for four outstanding accounts and set up a monthly payment plan. Aided by a new job in nursing at a higher salary, Shofran was able to pay down more than $26,500 in 4-1/2 years.
“I cried the day I finished paying it off. It was very freeing,” Shofran said.
Seek options, help
McClary, the National Foundation for Credit Counseling representative, said debtors with good credit have several options.
For those able, he suggested people pay above a bill’s monthly minimum, something he called a “power pay.” There’s also the option to seek credit debt consolidation and balance transfers. Pay attention to the details, though, as low- to no-introductory rates can jump substantially once the promotional period ends.
Or, simply call up the creditor and attempt to negotiate a lower interest rate. Check your credit score first and be prepared to negotiate, McClary said.
For debtors with subprime credit scores, McClary said options are limited. Power payments help. And, like Shofran did, he suggests people turn to nonprofit credit counseling agencies. Often, the first session is free and results in an action plan and a full review of credit scores and personal budgets.
“If you want an easier way to get out of a hole, stop digging,” McClary said.