Consumers are relying on their credit cards and installment loans again to pay bills each month as balances for both types of debt reached record- or near-record high.
Balances for credit cards in the U.S. reached $917 billion in the first quarter, almost a 20% increase year-over-year as consumers struggle to pay their bills with higher inflation rates and interest rates, according to TransUnion’s latest report examining consumer spending during the first quarter that was published today.
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"As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion.
The average credit card balance is $5,733 in the first quarter, rising by 14.4% year-over-year.
The average balances for an unsecured personal loan is $11,281, an increase of 14% year-over-year and is the highest it has been on record or since 2005. The levels of unsecured personal loans rose by 26.3% year-over-year and reached a new high of $225 billion.
The balances for personal loans have declined for two consecutive quarters of year-over-year growth rates and could be demonstrating that lenders are "showing more scrutiny in making underwriting decisions," TransUnion said.
High Inflation Rates Impacted Household Budgets
Inflation declined to the slowest pace in two years last month. The headline consumer price index for the month of April was estimated to have risen 4.9% from last year, according to the Bureau of Labor Statistics, down from the 5% pace recorded in March and the first dip below 5% in at least two years.
A decline in inflation rates, which has impacted food, energy and housing costs, could help consumers with meeting their budgets.
Whether consumers continue to use credit cards and personal loans to pay their household bills remains unknown, she said.
“It remains to be seen whether these balances will continue to grow in the near-term, or if growth will slow as consumers moderate their pace of borrowing and if lenders more closely scrutinize consumers and potential risk when determining to whom they lend moving forward," Raneri said.
Balances for credit cards fell slightly by 1.5% quarter-over-quarter. Credit card balances usually drop during the first quarter because some consumers take advantage of their tax refunds to pay down their debt, said TransUnion, a Chicago-based credit scoring company.
Despite the slight drop, the average balance per consumer is still high compared to 2022 with an increase of 14.4% year-over-year.
“Bankcard balances continued to grow as borrowers gained greater access to credit and subsequently leveraged that available credit," said Paul Siegfried, senior vice president and credit card business leader at TransUnion. "While bankcard originations were down slightly year-over-year and quarter-over-quarter, they still topped 20 million for the fifth time over the course of the past six quarters."
Fewer Car Loans
The higher costs of both vehicles and interest rates for auto loans likely contributed to fewer consumers seeking loans. The number of auto loan originations during the fourth quarter of 2022 fell by 9.7% year-over-year to 5.9 million, which is the lowest level since the fourth quarter of 2013.
Used cars continue to account for 60% of total car purchases during the first quarter. Fewer drivers are opting to lease a car, consisting of only 18% of new vehicle registrations, which is a decline of 20% year-over-year.
The average amount financed for new vehicles rose by 3.4% year-over-year while consumers took out smaller loans for used vehicles with a decline of 2.6% year-over-year.
Monthly loan payments increased year-over-year for new cars by 11.9% and 3.9% for used cars.
