Consumers turn to credit cards, personal loans to get by during inflation: data

People are turning to credit cards and unsecured personal loans to cope with high inflation, new data shows, while borrowing costs are rising and the United States is bracing for a possible recession.

Total bank card balances hit a record $866 billion in the third quarter of 2022, up 19% from the same period last year, according to TransUnion’s latest quarterly credit card industry report. credit released Tuesday.

This was spurred by “usage at all risk levels and recent high origination growth in unpreferred segments,” and higher balances among Gen Z and Millennial borrowers, a said the credit reporting agency. in a report.

Delinquencies also increase with the increase in available credit.

“However, the numbers remain relatively in line with 2019 pre-pandemic historic levels,” Paul Siegfried, senior vice president and head of credit card business at TransUnion, said in a statement. “We are likely to see continued growth in credit card usage as rising interest rates and inflation continue to put pressure on consumers, while employment numbers remain strong. “

Per borrower, the average balance reached $5,474, a 12.7% increase from a year ago, Michele Raneri, vice president of U.S. research and consulting at TransUnion, told MarketWatch. At the same time, the average credit card rate is at an all-time high of 18.94%, according to Bankrate. Delinquency levels must continue to be monitored, Raneri said.

However, most card interest rate increases aren’t retroactive, Raneri said, meaning consumers should be alert to any notices from credit card companies about rate increases for new purchases.

For unsecured personal loans, or the type of loans that don’t require collateral in case borrowers can’t repay their debts, balances rose 34% in the third quarter from a year earlier. , reaching 210 billion dollars.

“Unsecured personal loans are more likely to lend to riskier people, who have lower credit scores,” Raneri said. “Part of that has to do with a consumer’s ability to get other types of credit. So if someone has a higher credit score, they can probably access funds more cheaply, even credit cards.

However, it may be easier for someone with a lower credit score to get a subprime loan from one of the several fintech companies who are now dabbling in space.

Mortgages, meanwhile, continued their decline in the second quarter of 2022, down 47% from the same period last year, according to the TransUnion report. But homeowners still have plenty of equity to tap into — $19.6 trillion in total in the second quarter — and appear to be taking advantage of it, with home equity line of credit (HELOC) and home equity loans up 47 % and 43%, respectively, last year.

“Consumers who have equity in their home – who have $100,000 or hundreds of thousands of dollars in their home – it would be very expensive for them to get a big refinance on their home right now, and they would have to pay the higher interest rate associated with all of this,” Raneri said. “What they do, which is smart, is they just take the coin they need and pay the interest on it, which limits their exposure to the higher interest rate environment.”

Read next: How can I prepare for a recession if I’m struggling to pay rent, food, and utilities?