Credit card debt is on the rise — here’s what that means for your bottom line

From a personal finance standpoint, last year was unlike any other. Thanks to a series of stimulus checks and a widespread urgency to save, total U.S. credit card debt decreased by $76 billion during the peak of the pandemic.

One year later, vaccines are now widely available, people are traveling again, and people are spending again. The Fed recently released its quarterly household debt and credit report for April through June. As you can gather from the name, it evaluates the country's debt levels by category — such as mortgages, auto loans, and credit cards.

The total debt balance is just under $15 trillion as of June. Last quarter, it rose by $313 billion, which was the largest increase since 2007. Credit cards played a role, as the total credit card balance rose by $17 billion, ending four consecutive quarters of declines during the pandemic.

Clearly, consumer spending (and confidence) has recovered since the height of the pandemic, as credit card balances have rebounded. But more spending means less saving.

Since the onset of the pandemic, the U.S. personal savings rate — the percentage of disposable income that's saved — has ranged from 13% to nearly 34%. In June, it fell to 8.8%, aligning with the historical rate range of about 7-9%.

More people are dipping into their savings to pay bills. That could become a problem.

Delinquency rates are still high

The total debt balances in the Fed's quarterly report are eye-catching, but the more telling metrics are the delinquency rates.

As of June, approximately $405 billion, or 2.7%, of all debt was in delinquency. Of that amount, $316 billion was at least 90 days late or "severely derogatory." Credit card delinquency ticked down from 10% to 9.3% quarter to quarter but is still well above pre-pandemic levels.

Related: What to do if your credit card is delinquent — and how to prevent it from happening

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More importantly, as the report notes, these percentages are still somewhat suppressed by forbearance programs, which offer borrowers support during periods of financial hardship. This could be in the form of lower interest rates, deferred payments, or waived late fees.

But forbearances don't last forever. Eventually, borrowers need to settle their debts with their lenders. This is especially true with credit card issuers, as unpaid balances usually still accrue interest.

Related: The Fed plans to keep interest rates low in 2021 — what that means for your credit cards

Considering credit card debt is expensive, many borrowers could soon find themselves in a financial hole.

Rising credit card debt could become a problem

Credit cards are useful tools people can use to pay daily expenses and accumulate rewards in the process — like points, miles, and cashback bonuses. A rewards card could generate 3% cash back or double miles on every purchase. In essence, it's a way to get a little more bang for your buck. However, they can quickly become counterproductive if borrowers get behind on payments.

Related: The best rewards credit cards for September 2021

Credit card debt is expensive; their interest rates are much higher than other forms of debt. As of May, the average interest rate for credit cards was 14.61%. And that's the average — it's not uncommon for credit card rates to exceed 20%. In comparison, the average 60-month auto loan was 5.05%.

So, what happens if you don't pay off a credit card balance when your bill comes due? You'll owe interest on that amount. If this continues, the amount you owe compounds, making it harder and harder to pay off the last statement balance. Since credit card interest rates dwarf the percentage return of a rewards program, it completely offsets the benefits of accruing points and miles.

That's why it's important to routinely pay off your last statement balances.

If you're having trouble paying off your credit card balances, you may need to explore ways to prioritize and repay your debt. For instance, the avalanche method and snowball method are two popular approaches for adopting a debt-repayment mentality and digging out of a financial hole.

Related: Need help organizing and tracking credit card due dates and payments? These tips can help.