Credit card

Credit Card 

Credit card delinquencies are surging

Credit card delinquencies are rising in sign of 'worsening financial distress'

According to New York Federal Reserve data released on Tuesday, an increasing percentage of Americans are falling behind on their monthly credit card payments as they struggle with high interest rates and inflation. 

Over the three months from January to March, credit card delinquencies—which have already surpassed their pre-pandemic levels—kept rising.

In the first quarter of 2023, the annualised rate of credit card debt that progressed into delinquent was 8.9%, up from 8.5% in the previous quarter and 5.87% at the end of 2023. As a matter of fact, the proportion of seriously delinquent credit card balances reached its highest point since 2012.

According to the most recent NY Fed survey, Americans anticipate continued high inflation.

Credit card and vehicle loan transition rates into significant delinquent continued to grow in the first quarter of 2024 across all age categories, according to Joelle Scally, regional economic director at the New York Fed's Household and Public Policy Research Division.

"An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households."

Researchers at the New York Fed were not sure why there was a noticeable increase in delinquencies considering the low jobless rate, but they proposed a few ideas.

It's possible that despite having spent all of their spare savings during the pandemic, consumers are continuing to spend large amounts of money. The labour market's volatility could potentially be the cause of the surge. When Americans lose their jobs, they often find lower-paying positions elsewhere.

 Another hypothesis is that during the pandemic, student loan debt was no longer reported to credit bureaus, which led to a false increase in certain Americans' credit scores. That thus increased the number of people who could apply for a credit card.

Several concerns are being raised as small businesses are accruing credit card debt.

The researchers remarked, "These are all kinds of complex issues." "The precise cause of the rise in these delinquency rates is unknown. However, we are undoubtedly keeping an eye on it."

Given the absurdly high interest rates, the increase in credit card debt and usage is especially worrisome. The average annual percentage rate, or APR, on credit cards reached a new high of 20.72% last week, as per the Bankrate database, which is dated back to 1985. 19% set the previous record in July 1991.

In the long run, consumers may pay more for goods if they take on debt to offset higher pricing. For example, at the current APR rates, if you owing $5,000 in debt—as most Americans do—it would take approximately 279 months and $8,124 in interest to pay off the loan with the minimum payments.