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- The average annual percentage rate (APR) consumers pay on credit card debt is at an 18-year high, despite historically low interest rates across a variety of consumer credit products.
- Consumers paid down credit card and other revolving debt by $52.7 billion over the past three months, ending March 2018. That’s the largest paydown since 2010.
- Over the past decade, March has been the low-water mark for credit card debt balances. Expect a seasonal increase in April and beyond.
- Americans are still on pace to accumulate a collective $4 trillion in credit card and other types of consumer debt.
- While incomes continue to increase, consumer spending continues to increase at an even faster rate.
- Delinquency rates remain relatively low, and relatively few consumers anticipate they’ll miss a loan payment over the next three months.
APRs above 15%, an 18-year high, according to official data
According to a CompareCards analysis of a quarterly Federal Reserve survey of commercial banks, the average annual percentage rate (APR) of a credit card reached 15.32% in March, an 18-year high.
What’s even more remarkable is when one compares the spread between the average credit card rate and the prime rate today with the spread in 2000. Eighteen years ago, the prime rate was 9.50%, meaning there was about a 6 percentage-point spread between the prime rate and average rate on card accounts assessing interest. Today the prime rate is 4.75% — a 10.5 percentage-point difference between it and today’s credit card APR. In brief, even with the same APR, credit card interest is even more expensive for consumers today.
And APRs on variable-rate credit cards will continue to increase from that level. CompareCards estimates that with the most recent quarter-point increase in the federal funds rate in March, the average annual percentage rate of a variable-rate credit card carrying a balance will be 15.57% in May.
Temporary dip in credit card debt
Overall, American consumers decreased the amount they owe on revolving credit (primarily credit cards) by $8.1 billion in March. Since December, consumers have shaved $52.7 billion off their balances. That’s the biggest decline since 2010.
Typically, March is the last month consumers use to pay down their holiday spending. We expect the usual seasonal increase in revolving credit balances in forthcoming months.
Credit card debt below $1 trillion — for now
Outstanding credit card debt may be below the trillion-dollar mark now, but based on the long-term trend, revolving debt will soon again cross that threshold — and it will likely remain that way for the foreseeable future.
And it’s not just credit card spending. Balances of both revolving debt and other types of consumer loans — auto loans, student loans and personal loans — are contributing to the longer-term trend of growing debt. Over the past two years, the combined consumer debt, revolving and non-revolving, has grown at an annual rate of 5%-6%.
Incomes rising, delinquencies modest
The growth of credit card balances has outpaced income growth by a significant margin. While credit card debt increased by more than 5% year over year as of March, disposable personal income in the U.S. increased by only 3.7% over the same period.
Credit card balances, as a percentage of disposable personal income, remains just shy of 7%, at 6.93% in March. That figure has hovered at around 7% for about a year.
Delinquency and charge-off rates remain relatively modest, having been at about the same levels for more than a year.