When the Fed Sneezes, Borrowers Catch a Cold
Last week the Federal Reserve of New York released its Quarterly Report on Household Debt and Credit. Among its findings about the second quarter of 2023 were:
- Total household debt increased $16 billion to reach $17.06 trillion.
- Credit card balances increased $45 billion to a series high of $1.03 trillion.
- Retail credit card and other consumer loan balances rose by $15 billion.
- Auto loan balances increased $20 billion.
- Student loan balances fell by $35 billion to $1.57 trillion.
- Mortgage balances remained nearly steady at $12.01 trillion.
There’s a lot to unpack in these numbers both in macroeconomic and personal spending terms, yet let’s focus today on one: the all-time peak for credit card debt.
Eleven Sneezes in 17 Months
In this newsletter, we’ve covered the eleven increases in the Federal Funds Interest rate since March of 2022. Today the rate stands at its highest in 22 years: 5.25% to 5.5%. When the Fed’s target interest rate increases, the prime rate (the rate at which a group of banks charges their most favored customers) increases. Since almost all credit card issuers charge customers a rate that is based on the prime rate, any increase in the Fed’s rate directly affects the rate cardholders pay. In June of 2023, the average credit card interest rate reached 20.69%, a record high.
The Big Picture
While achieving an all-time high is certainly noteworthy, buried in the news about credit card debt are several relevant facts:
- The percentage of Americans with credit card accounts has increased from 59% in December of 2013, to 65% in December of 2019 to 69% in the second quarter of 2023.
- Despite the pressure that inflation is putting on American households, delinquency rates have normalized to pre-pandemic levels, including in lower income zip code areas.
- The July 2023 Consumer Confidence Survey (a report by The Conference Board that details consumer attitudes, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates) indicates that U.S. consumer confidence across all age groups and among consumers earning less than $50,000 and more than $100,000.
Tried-and-True Cold Remedies
Credit is a tool that, when used properly, can help you build wealth. If, instead, you find that rising rates are making it difficult to use credit or simply want tips how to manage credit card debt, check out the How We Help section of this newsletter.
Reading, Writing and the ABCs
Reading an analog watch, cursive and spelling: Are these skills still relevant or are they obsolete? Digital watches and clocks have replaced their analog counterparts in many classrooms and public venues, writing has given way to typing, and a spell check function is embedded in all our devices.
Leaving aside spelling and writing for a moment, when it comes to beauty, the analog watch beats digital, hands down. From the Parmigiani Fleurier Bugatti 370 (that allows drivers to see the time without taking their hands off the steering wheel), and timepieces from the Artisan Collection from Angular Momentum (watch faces are miniature versions of Dutch Baroque painters), to the ultramodern design of the RSW Wonderland Ladies Watch, there is a watch for every taste. These collectibles don’t, however, fit every budget. There’s at least one comma in the price of each, and most run well into the six figures. Some may consider these analog watches to be obsolete, but no one can argue that they aren’t design masterpieces and engineering marvels.
Two Weeks ‘til Conversion Weekend!
When we think of Labor Day, we think of parades, picnics, and back-to-school sales. We’ll be enjoying all three that weekend because we are confident that the account transition from TD Ameritrade to Schwab will continue to go smoothly. Access to your TD Ameritrade accounts will close on Friday, September 1 at 8:30pm (Eastern). If there are any trades executed that day, confirmations will be sent to you via mail. The markets will be closed on September 2, 3 and 4, and you will have access to your Schwab account on the fifth beginning at 5:00am (Eastern).
If you have any questions about the conversion process, please don’t hesitate to call our office.
It’s Time for Review Meetings!
If you are new to Obsidian, you may not know that every fall (beginning in September) we meet with our clients to review what’s going on in your life, especially any changes to your current situation or goals for the future. If you haven’t already been contacted by an Obsidian team member, expect a call or email soon. No matter which team member contacts you, they are prepared to guide you through the Review scheduling process. We look forward to seeing you soon!
How We Help
Take Charge of Credit Card Debt
We’ve written about protecting your credit and improving your credit score in this newsletter and plan to continue the credit discussion with articles about “good debt” and “bad debt,” and how to leverage it to grow wealth (e.g. purchasing appreciable assets such as business real estate). If you have questions about these topics, please feel free to ask during your next Review Meeting.
Today we share a few tips for managing credit card debt.
- We can help you factor paying off debt into a budget.
- Even today there are credit cards available with 0% APR. If you’d like to know more, give us a call.
- You can make your credit cards work for you by choosing and using them to accumulate points for travel, discounts on lodging or even cash back.
- It’s often possible to transfer balances from high-interest cards to lower-interest cards. Some cards still come with zero interest for an introductory period.
Credit cards are a necessary convenience of everyday life and can be great tools if used properly. If, however, you find that credit card debt is keeping you up at night, give us a call. We’re here to help.
Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member FINRA/SIPC. Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.