Consumers are piling up credit card debt at a rate not seen in decades as inflation continues to dominate the US economy.

In the most recent quarter, ending in September, overall consumer credit card balances increased 15%: the largest year-over-year increase the New York Federal Reserve has measured in more than 20 years. Taken together, the balances are close to $1 billionwithout adjusting for inflation, for the first time in history.

And while analysts say many American consumers remain in good financial shape thanks mainly to low unemployment, the debt situation is turning dire.

As the Federal Reserve has continued to raise interest rates to counter skyrocketing inflation, credit card rates have risen to the highest levels ever measured. According to Bankrate, the average annual rate for credit cards is 19.2%, the highest since it began measuring the data in 1985.

Bankrate data shows that it would take 16 years for someone to pay off the current average credit card balance of $5,474 by making the minimum payments at 19.2%. At that point, they would have shelled out $7,365 in interest alone.

“Which is pretty amazing,” said Ted Rossman, a senior industry analyst at Bankrate.

Yet even though they are paying more to finance their debt, many consumers still manage to keep their heads above water. At just 2.1%, credit card delinquency rates remain below pre-pandemic levels. The average rejection rate for credit card applications this year has decreased by 2.4 percentage points, to 18.5%, the New York Fed found. And the quarterly proportion of total credit card accounts that experienced bank-initiated or borrower-requested line of credit increases remains well above pre-pandemic levels.

«Although delinquency rates are increasing, they remain low by historical standards and suggest that consumers are managing their finances during the period of rising prices,» the New York Fed concluded.

Wealth disparities loom large

Experts say the economy is shifting toward a «K»-shaped recovery, with those with higher incomes able to make regular payments and manage their debt loads, while younger, less affluent customers appear more likely to stick around. behind.

«Even if some of the overall trends are more positive than one might think, I think there are individual areas where people have a harder time, especially those with lower incomes and lower credit scores,» Rossman said.

While concerns about a broader US credit crunch aren’t immediate, Rossman said, «if your home has a rate of 20%, that’s a big problem on an individual level.»

The New York Federal Reserve recently found that younger credit card borrowers have higher balances than before the pandemic, but that the impact on the broader economy of their debt issuances may be offset by older borrowers, whose balances are still lower than before the pandemic pandemic.

The central bank also found that US borrowers were able to reduce their credit card balances during the pandemic, but that the reduction was steeper among those in higher-income neighborhoods. And as of September, borrowers in high-income areas had credit card balances that were $300 lower than in December 2019, while the balances of those living in less affluent areas had higher balances than just before the pandemic.

Older and better-off borrowers are more likely to be employed. And Michele Raneri, vice president of US research and consulting at TransUnion, said the No. 1 indicator of a credit card payer’s delinquency is whether he or she has a job.

«The employment piece is huge,» he said. «The low level of unemployment continues to be an important factor that contributes to the fact that delinquency does not rise as much.»

On the other hand, said Sara Rathner, credit card expert at NerdWallet, more consumers are likely to rely on credit cards to pay for necessities like food and health care, as inflation has persisted and wages haven’t kept up.

«This is a difficult time for many Americans,» he said.

Still, TransUnion’s Raneri said, as long as credit card companies are willing to continue extending credit, credit scores are largely unaffected.

But holiday spending, which early reports show is already reaching record levels, could start to stretch wallets to breaking point, he said.

«I think we are seeing mixed signals in the market, with a small increase in the use of credit and with high inflation but low unemployment,» Raneri said.

While there is little cause for alarm at this point, he said, «we are waiting to see what effect interest rates have in the coming months. Now is an interesting time for the holidays.»