With household finances already under pressure and the Fed releasing its G19 report, the latest Credit Card Debt Study, found that consumers’ first-quarter paydown was the second-smallest in a decade (just $24 billion). The study also identified the cities with the largest year-over-year increase in credit card debt.

Cities with the Largest Debt Increase
1. Santa Clarita, CA11. Rancho Cucamonga, CA
2. Moreno Valley, CA12. Port St. Lucie, FL
3. Chula Vista, CA13. Huntington Beach, CA
4. Riverside, CA14. Anaheim, CA
5. Glendale, CA15. Oxnard, CA
6. Nampa, ID16. Pembroke Pines, FL
7. North Las Vegas, NV17. New York, NY
8. Fontana, CA18. Peoria, AZ
9. Henderson, NV19. Bakersfield, CA
10. Stockton, CA20. Fort Worth, TX

Credit Card Debt Study

  • Low Debt Reduction. Consumers started 2023 by paying off $24 billion in credit card debt. That is the second-smallest first-quarter pay down in the past 10 years.
  • High Average Household Debt. The average household credit card balance was $9,654 at the beginning of 2023. That’s $2,566 below WalletHub’s projected breaking point for household finances.
  • Best Balance Transfer Credit Cards. The best balance transfer credit cards currently offer 0% APRs for the first 12-21 months with no annual fee and low balance transfer fees.

Fed Rate Survey

In addition to the debt study, WalletHub recently conducted a consumer survey to see what people think about Fed rate hikes, considering there’s a 31% chance of another Fed rate hike on June 14.

  • Inflation Impact: 35% of Americans say their credit score has been affected by inflation.
  • Drowning in Debt: 2 in 5 people say Fed rate hikes are forcing them into more debt rather than forcing them to pay off debt.
  • Recession Vulnerability: 56% of people say they are not financially prepared for a recession.
  • Fed-Fueled Job Insecurity: More than 1 in 4 Americans say their job is at risk if the Fed continues to raise interest rates.

For the full results, visit WalletHub’s Fed Rate Hike Survey.

How U.S. Consumers Deal with Credit Card Debt

“U.S. consumers paid off some credit card debt during the first quarter of 2023, but it was one of the smaller first-quarter pay downs in the past 10 years,” said Delaney Simchuk, WalletHub analyst. “Unfortunately, a smaller-than-expected first-quarter decline in credit card debt is a harbinger for a lot more debt to be added throughout the rest of the year.”

What Will Credit Card Debt Levels Look Like in Late 2023

“WalletHub is now projecting that U.S. consumers will end the year with $150 billion more credit card debt than they started with,” Simchuk said. “For context, we added just over $179 billion in 2022.”

Are Fed Rate Hikes Forcing Consumers to Pay Off Debt?

“Rising rates have created an urgency among consumers to pay off debt with increased intensity, to avoid losing money to increased financing costs, but not everyone is in the position to go on the offensive against debt. According to a new WalletHub survey, 2 in 5 people say Fed rate hikes are forcing them into more debt rather than forcing them to pay off the debt they already owe, and the latest data shows that we just had one of the smallest Q1 credit card debt pay downs in the past 10 years,” Simchuk said. “Consumers dealing with increasingly expensive debt should consider options such as debt consolidation loans and balance transfer credit cards, which can help stem the advance of debt and send it into retreat.”

Consumers Feeling Effects of Fed Rate Hikes

“More than 2 in 3 people say their wallets have been affected by the Fed raising interest rates, according to a new WalletHub survey. Two years ago, most people probably didn’t even know what a Fed rate hike was,” Simchuk said.

Is Consumer Credit Quality Suffering?

“A new WalletHub survey found that 35% of Americans say their credit score has been affected by inflation, which is a bad sign because it indicates that consumers are becoming delinquent on existing debt,” Simchuk said. “Falling behind on existing debts makes it harder for consumers to qualify for new loans and lines of credit, which could make debt repayment less expensive, and delinquency only increases the cost of what you owe.”

Preparing for a Potential Downturn in the Economy?

“Unfortunately, 56% of people say they are not financially prepared for a recession, according to a new WalletHub survey, and the lack of readiness is most pronounced among the most vulnerable group. Over three times more people with low income say they are not financially prepared for a recession, compared to people with high income,” Simchuk said. “A recession isn’t even the only threat. WalletHub’s survey found that more than 1 in 4 Americans say their job is at risk if the Fed continues to raise interest rates.”

Source: WalletHub