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More Americans are falling behind on their monthly credit card payments as the country continues to battle high inflation and interest rates, according to New York Fed data released Tuesday.
Credit card delinquencies are already above pre-pandemic levels and continued to rise in the three months from January to March.
The annual rate of delinquency on credit card debt reached 8.9% in the first quarter, 8.5% in the previous quarter, and 5.87% at the end of 2023. In fact, the ratio of credit card balances is serious. Delinquency rates rose to their highest level since 2012.
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“In the first quarter of 2024, rates of credit card and auto loan transitions into serious delinquency continued to rise across all age groups,” said Joel Scully, director of regional economics in the Household and Public Policy Research Department at the New York Fed. said.
“We found that an increasing number of borrowers are falling behind on their credit card payments, worsening financial hardship for some households.”
In this photo illustration, a credit card is used to pay for gas. February 7, 2024, San Anselmo, California. (Justin Sullivan/Getty Images/Getty Images)
New York Fed researchers are unsure why delinquencies have increased so significantly despite low unemployment, but they have offered several theories.
Consumers may have depleted the excess savings they built up during the pandemic and are still spending at high levels even though that money is gone. This surge may also be a result of labor market fluidity. Americans lose their jobs and then find jobs elsewhere with lower salaries.
Another possibility is that some Americans’ credit scores have been artificially increased because student loan debt is no longer reported to credit bureaus during the pandemic. As a result, the number of people to whom credit cards can be issued has expanded.
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“These are all kinds of complex problems,” the researchers said. “We don’t know exactly what’s behind these increases in delinquency rates, but it’s definitely something we’re tracking.”
A new rule from the Biden administration places an $8 cap on late payment fees on credit cards. (Matt Cardy/Getty Images/Getty Images)
Increased credit card usage and debt are particularly concerning. level of interest Astronomically high. The average annual percentage rate (APR) for credit cards hit a new record of 20.72% last week, according to the Bankrate database dating back to 1985. The previous record was 19% in July 1991.
If people take on debt to cover higher prices, goods can become more expensive to buy in the long run. For example, if the average American owes $5,000, at current annual interest rate levels, it will take him about 279 months and $8,124 in interest to pay off the debt with minimal payments. It will be.
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The increase in balance is federal reserve Aggressive interest rate hike campaign to curb stubborn inflation and cool the economy.
nevertheless inflation has subsided According to the latest data from the Labor Department, wages have risen 3.7% in recent months compared to a year ago.
Rising inflation is putting severe financial pressure on most American households, forcing them to pay for necessities like food and rent. The burden falls disproportionately on low-income Americans, whose already maxed-out paychecks are heavily affected by price fluctuations.
