Credit Card Debt Hits $1.26 Trillion as K-Shaped Economy Widens

American credit card debt has hit $1.26 trillion, a new record, as the divide between high-income and low-income households continues to widen.

Economists are describing the current economic environment as K-shaped, a term that refers to a recovery or growth period in which different segments of the population move in opposite directions. Wealthier households are spending more on luxury goods and travel, while working-class and middle-income families are leaning on credit cards to cover everyday expenses.

The Federal Reserve held interest rates steady at its July 29 meeting, citing annual inflation that remains at 3.5 percent, well above its 2 percent target. High rates have made carrying credit card balances more expensive, with average interest rates on credit cards now exceeding 20 percent.

Housing costs are adding to the pressure. The 30-year fixed mortgage rate has held near 6.58 percent since May, keeping many potential buyers out of the market. At the same time, luxury home sales are rising, driven by buyers who are less sensitive to interest rate changes.

Financial advisors say the record credit card debt level is a warning sign for millions of households. "When people are putting groceries and utility bills on credit cards, that is a sign of real financial stress," said one certified financial planner.

Suze Orman, the personal finance author, has highlighted what she calls a dangerous shortfall in emergency savings among working households. She recommends that families prioritize building a cash reserve before paying down debt, to avoid falling back into borrowing when unexpected expenses arise.

Consumer advocates are calling on Congress to consider interest rate caps on credit cards, a measure that has been debated but not passed in recent years.