The Impact of High Interest Rates on Retail Credit Card Balances

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In This Article:

• Total Retail Credit Card Debt Increased by 6.7%
• Those With Poor Credit Scores Growing Their Balances the Fastest
• Average Retail Card Balances Rose Nationwide
• Younger Generations Add to Their Retail Card Balances, Despite Buy Now, Pay Later
• More Consumers Consider Buy Now, Pay Later an Option

Total Retail Credit Card Debt Increased by 6.7%

In 2023, retail credit card debt saw a significant increase of 6.7%. Despite a reduction in the number of retail credit card accounts compared to 2022, the average balance per account rose from $118.9 billion to $126.9 billion by the end of the third quarter (Q3) of 2023.

Those With Poor Credit Scores Growing Their Balances the Fastest

Consumers with lower credit scores experienced the highest growth in retail card balances. This is largely due to the higher interest rates on these cards, which already have above-average APRs. For instance, a $1,600 retail card balance with a 30% APR can cost about $270 in interest charges over a year.

Average Retail Card Balances Rose Nationwide

Across all states and Washington, D.C., the average retail card balance increased. Texas had the highest average balance, while Hawaii had the lowest. Even in states with moderate growth, the annual increase was at least 4%.

Younger Generations Add to Their Retail Card Balances, Despite Buy Now, Pay Later

In 2023, younger generations saw the most significant increase in store card balances. Generation X, however, still holds the largest average balance of $1,528, leading in this debt category as well as in credit cards, mortgages, and other types of consumer credit.

More Consumers Consider Buy Now, Pay Later an Option

With rising interest rates, many consumers are turning to more convenient and cost-effective financing options like Buy Now, Pay Later (BNPL). According to a 2022 study by the Consumer Financial Protection Bureau, the average BNPL loan size was $135. The Federal Reserve Bank of Boston reports that BNPL plans are gaining wider traction among consumers, especially those earning $75,000 to $100,000 annually.

Retail Card Spending Is Much More Modest Than Other Credit Card Spending

Retail card balances, totaling $127 billion, are about one-eighth the size of outstanding credit card debt. Although BNPL plans are smaller, with consumers carrying about $15 billion in BNPL debt, their popularity is growing, particularly among younger consumers.

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