According to one study, Americans have a total of $1.12 trillion in credit card debt. New report on household debt From the Federal Reserve Bank of New York.
Credit card balances decreased by $14 billion in the first quarter of 2024, but credit card delinquency rates increased, consistent with typical spending patterns after the peak holiday season. Especially among young adults, that is, he increased from the age of 18 to his 29 years of age. The New York Fed said high levels of student loan debt and overall high costs are taking their toll.
These Gen Z borrowers also have shorter credit histories and lower credit limits, making them more likely to max out their credit cards and miss payments. discovered by researchers.
“While the overall balance sheet is in very good shape, delinquency rates clearly indicate increasing stress among some segments of the population,” New York Fed researchers said in a Tuesday press conference. ” he said.
According to research by the New York Fed, about 8.9% of credit card balances fell into delinquency last year.
According to another report, many consumers are stressed by rising prices, especially for food, gas, and housing, and more cardholders are racking up debt or falling behind on their payments each month. That’s what it means. bank rate From January.
“High inflation and high interest rates are contributing significantly to Americans’ debt burden, making it difficult to service this debt,” said Ted Rothman, senior industry analyst at Bankrate.
But those just starting out face additional financial challenges.
Not only are their wages, adjusted for inflation, lower than their parents’ incomes in their 20s and 30s, but these days they also carry large student loan balances. report shows.
Additionally, if you bought a car or made other important purchases in the past few years, rising prices and interest rates could mean your monthly payments will be much higher, Fed researchers said. . Borrowers are now suffering even more. ”
At the same time, credit cards have become one of the most expensive ways to borrow money. Credit card interest rates, already high in recent years, have soared as the Federal Reserve has raised interest rates a series of 11 times since 2022, including four last year.
Most credit cards have variable interest rates, so they are directly tied to the Fed’s benchmark. As the federal funds rate rose, so did the prime rate, and credit card interest rates followed suit.
According to Bankrate, the average annual interest rate is now over 20%, which is near an all-time high.
“The Fed is likely to continue raising interest rates for an extended period of time, and credit card rates will remain high for some time,” Rothman said. “This will probably be the second time in history that the national average has ended the year above 20%.”
“Interest rates aren’t going to go down anytime soon, but you still have options, especially if you have good credit,” said Matt Schultz, chief credit analyst at LendingTree.
If you have a balance, try calling your card issuer and asking for a lower rate. Alternatively, you can consolidate high-interest credit cards and pay them off at a lower interest rate. home equity loan Schultz said you could take out a personal loan or switch to an interest-free balance transfer credit card.
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To get the most out of their credit card benefits, consumers should regularly compare credit card offers, pay off balances as quickly as possible, and pay their bills, said Mike Townsend, a spokesperson for the American Bankers Association. It is necessary to ensure that there are no delays. .
“Credit cardholders who are experiencing financial stress should always contact their card issuer to inform them of their situation,” Townsend said. “They may be eligible for some relief or assistance depending on their individual circumstances.”
