According to the Q1 NY Federal Reserve Bank’s Household Debt and Credit Report, total household debt increased by nearly 1 percent from Q4 2022 to $17.05 trillion, an all-time high. On a quarter-to-quarter basis, credit card loans remained flat, totaling $986 billion. These figures raised concerns for many analysts, mainly as outstanding consumer credit card loans typically shrink during these times as consumers try to pay off holiday shopping expenditures paid by credit cards. Despite robust retail sales data, recent credit reports have sparked debates over the economic well-being of the consumer. Is the negative connotation valid? This quick piece will provide some context.

Generally, there is a common misconception about credit card balances. First, we must view credit card balances as a form of payment rather than a debt measurement. Therefore, if we assume that consumers keep their spending habits constant, higher interest rates on credit cards will cause overall debt to increase. However, consumers usually pay their credit card balances—in this context, “debt”—before the payment deadline, prior to any interest accrual. On the other hand, balances not paid off after 30 days or more are categorized as “delinquencies.”