Americans racked up a record $180B in new credit card debt in 2022

Americans racked up a record $180.3 billion in additional credit card debt last year, as rampant inflation and dwindling savings rates forced many families to tap lines of credit, a new study finds.

US credit card users ended 2022 with $1.18 trillion in outstanding credit card debt, a 15% increase from the year before, according to a study by WalletHub released on Wednesday. 

In the fourth quarter alone, credit card debt increased by $85.8 billion – the highest quarterly increase ever recorded – and the average household ended the year with $9,990 in credit card debt.

As the Federal Reserve raises its benchmark interest rate to fight inflation, credit card variable rates have risen in tandem, making the debt more costly to pay off.

Americans racked up a record $180.3 billion in additional credit card debt last year

If the Fed issues a larger 0.5-percentage point rate hike later this month as expected, it will cost credit card users $3.4 billion in addition interest payments over the next 12 months, according to another study for WalletHub. 

The study rates the probability of a 50 basis point hike at the March 22 meeting at 70%, following a string of troubling data showing that the fight against inflation could be stalling out.

If the Fed issues a smaller 25 basis point hike this month, it would still cost credit card users an extra $1.7 billion in interest payments, the study found.

Over the past year, the Fed has raised its policy rate from near zero to a top range of 4.5%, and increase that WalletHub says will already cost consumer around $30.4 billion in extra interest charges over the next 12 months. 

The Fed's rate hikes have roiled Wall Street and the housing market, but the central bank is attempting to get inflation under control by cooling the economy through higher borrowing costs.

'Workers have seen falling real wages for almost two years. Getting inflation under control will help stabilize ordinary families' purchasing power,' said Alexander William Salter, associate professor of economics at Texas Tech.

For those carrying big credit card balances, higher rates will mean a steeper climb out of debt

The Federal Reserve has raised its target interest rate by a quarter of a percentage point, slowing down from the rapid hikes implemented last year

'Wall Street probably will not like it (tighter policy usually means less buoyant asset markets), but Main Street needs it,' he added of the Fed's plans for further rate hikes.

But for those carrying big credit card balances, higher rates will mean a steeper climb out of debt.

WalletHub found that the city with the biggest average household credit card debt at the end of 2022 was Santa Clarita, California with average debt of $19,036, followed by New York city with $18,525.

Lewiston, Maine had the lowest average credit card debt at $8,200, and also saw the smallest increase in debt last year, rising just $312 per household.