As the national credit card debt surpassed a staggering $5 trillion last November, ominous signs are emerging in the realm of credit card delinquencies.
Surpassing pre-pandemic levels and reaching heights not witnessed in over a decade, these delinquencies are painting a concerning picture, exacerbated by soaring interest rates that are making it increasingly difficult for inflation-weary consumers to stay afloat.
The Alarming Statistics
A recent report from the Philadelphia Federal Reserve reveals that all stages of credit card delinquencies—30, 60, and 90 days past due—have surpassed 2019 levels. The delinquency rates are on the rise, with holders 30 days late experiencing a rate increase from 2.76% to 3.19%.
Those 60 days or more overdue spiked from 1.91% to 2.21%, and serious delinquencies of three months or more rose from 1.32% to 1.52%.
The report highlights a growing sense of “consumer fragility,” manifested in the increasing number of consumers unable to pay their credit card bills in full each month. Only 33.2% of card accounts are paying off their balances, marking the lowest percentage since the fourth quarter of 2020.
Consumers not paying their bills in full are grappling with the punishing cost of credit. With an annual average interest rate on credit cards hovering around 21%, some cards charge nearly 30% for those carrying balances.
Making only the minimum payment on an average credit card balance of $6,000 at an average rate of 20.74% could result in being in debt for over 17 years and paying $9,000 in interest.
Ted Rossman, a senior analyst with Bankrate, emphasizes the brutal nature of the minimum payment math, especially when dealing with interest rates exceeding 20%.
Simultaneously, the qualification for credit is becoming more challenging as banks take steps to mitigate their risk. The percentage of card accounts receiving a credit line increase is decreasing, with more banks opting to decrease consumers’ credit lines.
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Credit Card Delinquencies Rise Amidst Pandemic-Driven Debt Repayment
The surge in credit card delinquencies stands in stark contrast to consumer spending habits during the pandemic, marked by government subsidies that were used to pay down credit card debt, reaching historic lows in 2021.
The aftermath of last season’s holiday spending, compounded by the popularity of “buy-now-pay-later” options, further exacerbates the financial strain on consumers.
Adding to the financial strain, student loans that were put on hold for three years resumed in October after a pause granted by the Biden administration. Data from the US Department of Education reveals that 40% of the 22 million borrowers with bills due after Biden’s one-time forgiveness plan fell through did not make their October payments by mid-November.
Signs indicate that even fewer student borrowers made payments in November.
The surge in credit card delinquencies raises concerns about the financial health of consumers grappling with soaring interest rates and mounting debt.
As the landscape of consumer debt evolves, navigating these challenges requires a careful consideration of spending habits, interest rates, and evolving economic conditions.
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