Credit card delinquencies increased in the first three months of this year. According to the Federal Reserve Bank of New York, 1 in 6 card users have at least 90% of their credit limit “maxed out.”
Justin Sullivan/Getty Images
hide caption
toggle caption
Justin Sullivan/Getty Images
Credit card delinquencies increased in the first three months of this year. According to the Federal Reserve Bank of New York, 1 in 6 card users have at least 90% of their credit limit “maxed out.”
Justin Sullivan/Getty Images
More Americans are falling behind on their credit card bills.
According to , about 8.9% of credit card balances fell into delinquency last year. Federal Reserve Bank of New York This shows that more and more borrowers are feeling the strain of rising prices and high interest rates.
“Everything is getting more expensive. Debt is getting more expensive. Rent is getting more expensive. Food, gas, everything,” said Charlie Wise, senior vice president at credit bureau TransUnion. “Despite the relatively healthy wage increases we have seen over the past few years, many consumers have not kept pace with price pressures.”
Borrowers reaching their limit is a major concern
The New York Fed report shows the pain is not being spread evenly. While many households are on solid financial footing, nearly one in five Americans has “maxed out” at least 90% of their credit card limit. The report says this is concerning because maxed-out borrowers are far more likely to default on their bills.
The report says people under 30 and those living in low-income areas are particularly likely to hit the cap. About 1 in 6 Gen Z borrowers are close to running out of credit, compared to 4.8% of baby boomers.
Approximately half of borrowers carry a monthly balance
Overall credit card balances in the first quarter of this year were $1.115 trillion, an increase of $129 billion from last year. For card users who pay their balance in full every month, that’s not a problem. But according to Bankrate, about 44% of borrowers carry on credit card debt each month.
“The credit card market is really one of those proverbial tales of two cities,” said Ted Rothman, senior industry analyst at Bankrate. “About half of cardholders receive significant benefits such as paying in full and receiving rewards and buyer protection. And the other half are more or less susceptible to high debt cycles.”
Credit card debt is very expensive, with average interest rates over 20%. Borrowers who only make the minimum monthly payments can take nearly 20 years to pay off their debt, Rothman said. If his average balance is $6,360, the interest alone will total $9,500.
“For consumers struggling with debt, time is not on their side,” said Mike Croxon, CEO of the National Credit Counseling Foundation. “That rate is likely to continue to increase as you pay the minimum amount or not pay the minimum amount.”
Credit card delinquency rates are on the rise
Early in the pandemic, when spending opportunities were limited and the federal government provided relief money, many people paid off their debts and credit card delinquency rates fell to historic lows.
That trend has now reversed. Despite rising wages and falling unemployment, credit card delinquencies have returned to pre-pandemic levels.
“Consumers have fared very well throughout this recovery,” said a researcher at the New York Fed, speaking on condition of anonymity. “One of the concerns about this is why are consumer delinquency rates going up during what we consider a strong labor market and a strong economy? The fact that we’re seeing this is something we’re looking at.” ”
