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Credit card debt is on the rise, but that doesn't mean it is time to panic about the state of American credit. Though the economy is pressuring the bottom lines of American families, consumers have demonstrated increased financial literacy, according to a recent study from TD Bank.

Let’s be blunt: last year was hard on many Americans’ finances. The impacts of inflation are forcing families to stretch their dollars further to cover soaring costs of everyday necessities. Meanwhile, monetary tightening by the Federal Reserve pushed interest rates up, making borrowing and debt more expensive. According to a report from the Federal Reserve Bank of San Francisco, savings accumulated during the pandemic have been slowly depleted over the last year for many families. 

report from the Federal Reserve Bank of New York paints a similarly challenging picture. According to the Federal Reserve, total household debt in the US reached $17.5 trillion in the last quarter of 2023, an increase of $212 billion (+1.2%) compared to the third quarter of 2023. Credit Card debt also grew by $50 billion (+4.6%) in the past quarter, topping $1 trillion for the first time in Q3 2023 and continuing to climb in Q4. Credit card balances are rising, with a Transunion report showing a record high average balance of $6,360. Transunion also reported a 50% surge in credit card delinquencies in 2023, a trend that has continued in 2024.

However, consumers are savvy to the implications of their credit card spending. TD Bank's Consumer Spending Index found that eighty three percent of consumers knew the range of their credit score, and almost 50% could give you their exact score. Though the relative financial illiteracy of the American public has been an oft-cited concern by experts who worry that Americans aren’t adequately preparing for the future, these trends show that that may no longer be the case. 

One possible reason for the rise of financial literacy is the availability of credit tracking tools — whether from a customer’s own bank or other personal finance company services. TD's Consumer Spending Index shows that consumers have a genuine understanding of how their credit works; when asked, three out of four consumers could correctly identify the recommended credit utilization rate.

Consumers are even passing this knowledge onto their children; 75% of respondents with teenage children reported teaching them the importance of establishing credit, and 70% have even begun helping them in the endeavor.

Of course, none of this means that Americans are necessarily having an easier time navigating today’s difficult economic environment. Despite the survey finding that four in five respondents have made changes to their spending as a result of inflation, reported delinquencies on credit cards have continued to increase. The stress is still on for consumers who are struggling to keep up with payments. 

It sounds very frightening — and if you’re struggling to keep up with payments, I’m sure it is very frightening. But this all needs to be looked at in perspective:

  • Credit card delinquencies are up — but they had dropped to unheard of levels during the pandemic, as families were able to utilize their stimulus payments to pay down debt. The levels of delinquency that we’re looking at now are just about reaching what they were pre-pandemic in 2019.
  • Unemployment remains low — while economic indicators like inflation and interest rates are high, low unemployment means that there is still a good deal to be optimistic about. Paying any debt off typically depends on having a job to bring money in. 

  • Financial anxiety is very real — and it can be hard to deal with. If you’re really nervous about things, there are financial experts and advisers out there who can help put into perspective your situation. There’s also a ton of free financial information online and resources that can help you to get on track. Reach out to your bank to learn more about the financial literacy options they might have. 

Understanding your credit score is a great first step to managing your finances. Paying attention to your use of debt and continuing to hone your financial knowledge can help you navigate an uncertain economic environment.

Christopher Fred is head of U.S. credit cards and unsecured lending at TD Bank. 

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