Credit cards mostly a payment method, paid off monthly. Importance for borrowing declined over the years.
By Wolf Richter for WOLF STREET.
Credit card balances include balances that accrue interest and balances that are paid in full at due date so that no interest accrues. Many Americans use credit cards purely as a payment method (and to collect the 1.5% cash-back or whatever), and not as a borrowing method. So credit card balances are much more a measure of spending, than of borrowing.
Fitch estimated that the total amount paid with credit cards in the US reached $4.6 trillion in 2021. Only a tiny amount of the spending wasn’t paid off in full and added to the interest-bearing debt.
In the third quarter, credit card balances rose by $38 billion from the prior quarter, to $930 billion, according to the New York Fed’s Household Debt and Credit Report. This $930 billion includes transactions incurred roughly in September but paid off in full in October, that are not accruing interest.
Credit card spending has been boosted by the resurgence in traveling, with credit cards being used as payment method for hotels, airline tickets, rental cars, meals, etc. Surging costs further drive up the amounts that flow through credit cards. But card holders paid off in full nearly all of the new amounts that were paid for by credit card during the quarter.
Household have a lot of debt, but the problem isn’t credit cards, it’s mortgages.
In a moment, we’ll look at…
