Credit card balances hit a record-high of $1.13 trillion in 2023's fourth quarter. LendingTree Chief Credit Analyst Matt Schulz joins Yahoo Finance Live to discuss consumer spending patterns as credit card debt is compounded by mounting pressures on household income.

Schulz believes there are “reasons to be hopeful” about consumer spending, considering inflation trends and forecasts indicating interest rate cuts at some point this year. However, Schulz says consumers have “seen their financial margin for error in their household shrink from a pretty small amount to almost zero,” which has ultimately driven them to increased credit card usage.

Schulz appears optimistic, but states plainly: “I think there his reason to think that things may get a little bit worse before they get a little better."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim

Video Transcript

- And Matt, it's important to put this in perspective, right? We still aren't anywhere near the levels that we saw during the height of the Great Recession, obviously. But when it comes to the pressure that is on the consumer right now, exactly what this could mean then for spending trends. How quickly do you think that that landscape could potentially deteriorate given the fact that we are getting these numbers that it is such a jump.

MATT SCHULZ: Yeah. It's tough. A lot of it's going to depend on how inflation keeps trending. There are reasons to be hopeful as far as that goes. And that's a positive sign. There's also reason to be hopeful as it relates to interest rates. I don't think we're going to see them lower in the next couple of months. But certainly, by the second half of the year I would think we would.

But the truth is, again, that a lot of people over the years of inflation, rising interest rates have seen their financial margin for error in their household shrink from a pretty small amount to almost zero. And that forces a lot of people to rely on credit cards as kind of an emergency fund type of thing. So I think that there's reason to think that things may get a little bit worse before they get a little better.

- How much worse, Matt?

MATT SCHULZ Well, it's hard to say. I think the numbers that we get next quarter are going to be really telling, because in the fourth quarter, we pretty much always see credit card debt rise, but we also often see it decrease in the first quarter. And in 2023, we actually saw it stay flat. And it was the first time in a long time that we hadn't seen credit card debt decrease in the first quarter. And it was a really bad omen for the year ahead. What we are going to see next quarter I think is going to be pretty telling.