Americans Ramp Up Credit-Card Spending in Return to Old Habits

(Bloomberg) -- Americans are racking up bills on credit cards, returning to pre-pandemic habits after emergency relief programs ended and the economy reopened. 

Credit card balances increased by $17 billion to $800 billion in the third quarter, the second gain in a row after a year of declines, the Federal Reserve Bank of New York said Tuesday. While the total number is $123 billion lower than at the end of 2019, the past two quarters mark a return to relative normalcy. 

“We are beginning to see the reversal of some of the credit-card balance trends seen during the pandemic, namely reduced consumption and the paying down of balances,” Donghoon Lee, research officer at the New York Fed, wrote in a report. “As pandemic restrictions are lifted and consumption normalizes, credit card usage and balances are resuming their pre-pandemic trends.”

Americans hold a record 520 million credit card accounts, with a massive $3.2 trillion in credit available.

Overall, U.S. household debt increased by $286 billion to $15.2 trillion last quarter -- $1.1 trillion higher than at the end of 2019. 

Most of the increase came in mortgage balances, the largest component of household debt. With the average 30-year rate holding to a relatively tight and historically low range during the period, millions of Americans with good credit took the opportunity to refinance and cut their monthly payments.

A surge in home prices during the pandemic has improved the equity position for millions of home owners. Still, banks remain cautious about who they lend to, the report shows. Of the $1.11 trillion in newly originated mortgage debt last quarter, 69% was for borrowers with credit scores over 760 -- a high level.

Only 2% went to subprime borrowers, a sharp contrast to the 12% average seen between 2003 and 2007, before the Great Recession, according to the Fed. Last quarter there were 80.8 million mortgage accounts, down from more than 98 million accounts in early 2008. 

Another finding from the report is that younger Americans are jumping into housing. A record amount in mortgage originations came from people aged 18 to 29 last quarter, almost double the amount from two years earlier.

Student-loan debt, the second-largest component of debt in American households, rose $14 billion last quarter. About 45 million Americans with student debt will resume payments in February after almost two years of a pandemic freeze.

Student debt has loomed large over President Joe Biden, who has enacted several targeted loan forgiveness programs -- including most recently forgiving federal debt for Americans with severe disabilities -- but fallen short so far of the sweeping action he promised on the campaign trail. 

Americans owe a collective $1.8 trillion in student-loan debt, according to a separate measure by the Federal Reserve, a result of what critics call a broken system that cripples economic mobility, and one that cements the racial wealth gap, and affects women worse.

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