When the free money runs out, the hangover is resolved.
Insights from Wolf Richter on Wolf Street.
The delinquency rate for credit cards issued by commercial banks, specifically those that are 30 days or more overdue, dropped to 3.05%. This marks the third consecutive quarter of decline, a slight improvement from the first quarter of last year, which had a rate of 3.17%, based on data from the Federal Reserve.
During the pandemic, late payments were largely reduced due to the influx of financial support to households. With fewer options for spending—think restaurants, flights, cruises, and entertainment—some consumers managed their finances better. However, as that financial support began to wane, we find ourselves in the second quarter of 2024. It seems we’ve passed the peak of late payments, and they’re now on a downward trajectory.
It’s interesting—these consumers, affectionately dubbed “drunken sailors,” have shown a lot of resilience and adaptability during these times.
For Prime rating cardholdersAccording to Fitch Ratings, the delinquency rate for prime cardholders remained steady at 1.07% in March, reflecting normal levels seen five years prior to the pandemic, hovering just above 1% since December 2023.
There’s a notable pattern, often termed the “frying pan” effect, that has shown up in various credit measures since the shift in financial dynamics caused by pandemic-related support.
Credit Card Balance: Expense Scale.
As for credit card balances, they decreased to $1.18 trillion, a drop of $29 billion from the first quarter, as noted in the New York Fed’s household debt and credit report. This change was mostly seasonal, a common trend where balances typically decline after the fourth quarter.
Interestingly, compared to last year, credit card balances saw a 6.7% bump due to increased consumer spending amid rising prices. It’s worth considering that credit cards serve more as a spending tool than a borrowing one—almost edging out cash and checks in the U.S. payment landscape. In 2022 alone, they were used for nearly $6 trillion in transactions.
As for “other” consumer loans, including personal loans and buy-now-pay-later (BNPL) options, they slightly dipped by $1 billion compared to the first quarter, now totaling $540 billion. This figure has remained relatively stable over the years despite growth in population and spending.
Credit card balance burden: Debt-to-Income Ratio.
Credit card balances and other consumer debt dropped by $1.74 trillion, a 2.3% fall in the first quarter, yet year-over-year they increased by $66 billion, or about 4%. To assess how manageable these debts are for consumers, we often look at the debt-to-income ratio, which provides insight into a borrower’s ability to handle their debts.
Disposable income refers to what households earn from all sources—excluding capital gains—after taxes. This metric helps gauge the cash available for paying housing, debt obligations, and other essential expenses.
- Quarter-over-quarter: Disposable income rose by 1.6%, while credit card and other balances declined by 2.3%.
- Year-over-year: Disposable income grew by 4%, alongside a 4% increase in credit card and other balances.
Total credit balances have now fallen to 7.8% of disposable income, a figure similar to what we saw in the previous quarter. After cutting back on travel and entertainment spending, this ratio has swung back from the unsustainable levels during the pandemic, settling at lower levels once again—much different from the 14% seen back in 2003 when records started.
Credit limits and available credits will expand to New High.
Banks are actively setting up new credit card accounts and raising credit limits. Total credit limits have risen sharply to reach $5.16 trillion in the first quarter. In this context, the total available credit—defined as the credit limit minus the outstanding balances—has also touched a new high of $4.0 trillion.
In the wake of the Great Recession, banks significantly reduced credit access—resulting in a 28% decline in total credit limits until 2010. But the current trend tells a different story.
And just in case you missed it:
Insights into auto loan balances and debt-to-revenue ratios for the first quarter of 2025, and household debt details highlighting serious delinquencies and bankruptcies.
