Credit Card Debt in 2021: Balances Slightly Decline

Overall Credit Card Balance Falls Slightly in 2021

Total credit card balances fell $3.79 billion to end the third quarter (Q3) of 2021, the most recent quarter included in this analysis, with a balance of $784.5 billion. The drop in total balances marked the second consecutive year of credit card balance declines, although the 0.5% decrease in 2021 was slight compared with the precipitous 8.6% ($73.94 billion) drop in 2020.

But there are nuances in the change from Q3 2020 to Q3 2021. Most of the decreases occurred in the 2020 calendar year. From March 2021 onward, the trend is decidedly positive, with month-over-month increases throughout. In other words, a third consecutive year of balance decreases is unlikely.

Source: Experian data from Q3 of each year

While balances declined, the number of credit card accounts grew by 14.7 million, nearly identical to the 14.5 million account increase in 2020.

Source: Experian data from Q3 of each year

Average Credit Card Balance Down 2.1%

The average credit card balance for individuals, as well their average credit limits, fell again in 2021, though neither declined as sharply as they did in 2020. The average credit card balance among consumers was $5,221 as of Q3 2021. That’s 2.1% lower than the 2020 average balance of $5,315.

Credit card limits fell slightly as well, to an average of $30,233 in 2021. The 1.9% pullback was similar to the decline in balances, so it’s not so surprising that the average credit utilization ratio―the percentage of a credit limit a consumer carries as a balance—remained unchanged, at 25%.

Source: Experian data from Q3 of each year

Average Balances Fall Slightly in Nearly Every State

As might be expected, consumers in most states also followed the national trend of decreasing their credit card balances in 2021. Except for outliers Massachusetts and Washington, D.C., which saw slight increases in average balances, most states saw average credit card balances trend slightly lower than they were at the end of Q3 2020. Alabama and Mississippi saw the biggest dips, with average balances decreasing 2% or more in 2021.

Source: Experian data from Q3 of each year

Credit Utilization Remains Low

In 2020, following the beginning of the pandemic lockdown, consumers’ average credit utilization ratio dropped to 25%—the lowest rate in at least a decade. In 2021, the average ratio remained low, as many consumers regained their financial footing following a year of interruption to income, spending or both.

Source: Experian data from Q3 of each year

As in previous years, average credit utilization ratios trend lower as FICO Scores increase. On average, those with good credit scores, between 670 and 739, utilize 33.9% of the credit available on their credit cards. Those with fair scores, though, use 50.5% of their available credit on average.

Credit utilization is an important credit scoring factor, and those with the highest average credit scores in our analysis also have the lowest credit utilization. Lowering your credit utilization is no guarantee of a higher score, but the data illustrates that the difference between using half your available credit and only one-third can be significant.

Source: Experian data from Q3 2021

Some Generations Reduce Balances

Total balances fell significantly in 2020 regardless of a borrower’s age, as consumer spending was broadly curtailed from initial pandemic restrictions on gathering and travel. In 2021, the change in balances reverted to its more typical pattern, where younger borrowers generally grow their average balances, while older generations tend to both spend less and carry lower balances as they age.

Source: Experian data from Q3 of each year; ages as of 2021

Millennials and the fast-growing Generation Z saw their average balances increase in 2021, as both generations typically encounter their own financial milestones: first residence, first automobile, repayment of student loans and first mortgage, to name a few examples. Generation X joined baby boomers and the silent generation in lowering balances in 2021, though Generation X still carries the largest average balance ($7,070 in 2021) among all the generations.

Source: Experian data from Q3 of each year

Rate Increases, Inflation and Credit Usage Will Drive Balances in 2022

For most of the 2010s, credit card balances trended steadily higher, as a decade free of economic recession meant a reliable stream of consumer purchases and credit card financing. Some years were more muted than others throughout the decade, but the trend was always positive.

That all changed during the pandemic, when the statistics used to measure economic activity gyrated wildly and seasonal trends became difficult if not impossible to observe in the spending data. Seemingly overnight, the “what, where and how” of everyday household purchasing changed due to travel restrictions for all consumers, not just those impacted by sudden changes in income.

And in the summer of 2021, rising rents, rising home prices and supply shocks began to manifest in inflation data. The September 2021 rate of inflation was 5.8%, the highest annual jump since the 1980s, with even higher rates recorded since.

Alas, the data for 2022 may not be any clearer than previous years. Aspects of the pandemic continue to persist, and inflation may simply add to disruptions in income, supply shortages and spending experienced in 2020 and 2021. It appears likely that, for the first time this century, inflation will be a persistent factor consumers will be forced to consider on an everyday basis.

Particularly, borrowers who revolve credit from month to month—in other words, carry a balance—will be paying more in interest accruing on those balances. So far this year, the Federal Reserve has raised the federal funds target rate three times, and several more incremental interest rate increases are expected. As most credit cards are variable rate cards, APRs on those cards are likely to increase in line with the broader Federal Reserve increases.

Apart from rate increases and inflation, credit card balances appear to be under control. Utilization remaining low is encouraging news for consumers, appearing to indicate a combination of both lenders willing to extend credit to worthy borrowers, as well as financial prudence on the part of consumers.