Consumer Credit Card Delinquencies Are Keeping Americans Up at Night

American consumer credit card delinquencies are a cause for concern. The key attributes that have brought delinquencies to a 13 year high include high interest rates, cost of living inflation, depleted pandemic savings, student loan moratoriums ending, wage growth not keeping and subprime borrowers becoming in debt. 

Inflation has significantly increased the prices of essential goods and services, such as food, housing, and transportation. Consumer essentials like rent, groceries, and gas remain costly, forcing more people to rely on credit cards. As household budgets tighten, many struggle to keep up with payments. This economic strain among consumers has made it difficult on the ability to pay bills.

During the pandemic many Americans used stimulus checks and reduced their spending to pay down debt. At present day, these savings have been largely depleted and credit card balances are now rising. With no new stimulus on the horizon, more and more consumers are vulnerable to debt accumulation.

Another attribute is the student loan moratorium ending which has caused millions of Americans to resume/restart student loan payments in late 2023. More specifically, the federal student loan moratorium ended on September 1st, 2023 with payments resuming in October 2023. As the federal student loan payments restarted some many who took out student loans have had difficulty meeting their repayment obligations. This added another financial burden making it harder to pay down credit card balances let alone student loans.

While wages have risen, they haven’t kept pace with stagnant inflation. More and more consumers are living paycheck to paycheck, struggling to cover their credit card payments. These factors alone can cause consumers to extend their credit just to make ends meet. In some cases consumers only have the option of using credit cards during this period and the high utilization of this is another strong indicator of potential delinquency.  

U.S. credit card debt surpassed $1 trillion for the first time. The current rise in delinquencies is concentrated among a group of particularly overextended subprime borrowers, who stand out on three points, age, location and credit rating. Some 11% of borrowers between the ages of 18 and 29, and 9% aged between 30 and 39, fell into serious delinquency in the final three months of last year, compared with just 5% of those in their 60s. Thus many Americans have high balances and are closer to their credit limits, leading to missed payments.

Recent data published by the Federal Reserve Bank of New York show that the proportion of American credit-card debt in serious delinquency with balances at least 90 days overdue have surged to 11% in the final quarter of last year. With the attributes of high interest rates, cost of living, depleted savings, resumed student loan payments, lack of wage growth and vulnerable subprime borrowers becoming in debt has created a challenging financial environment for many Americans, leading to a rise in credit card delinquencies

Caleb Hammer, a personal-finance social-media star