Record High Credit-Card Debt Raises Concerns as Delinquency Rates Soar

The burden of credit-card debt continues to escalate in the United States, with the third quarter witnessing a record-breaking surge. According to the latest report on household debt from the Federal Reserve Bank of New York, credit-card balances soared by $48 billion from July through September, marking a significant 4.7% increase compared to the previous quarter. As a result, Americans’ total credit-card debt has now reached an unprecedented high of $1.08 trillion, surging $154 billion in just one year. This staggering annual increase is the largest ever recorded since tracking began in 1999.

While this surge in credit-card balances aligns with a robust consumer spending pattern overall, certain segments of the population are experiencing severe financial strains. Researchers at the New York Fed noted that delinquency rates on credit-card bills have continued to rise, with borrowers aged between 30 and 39 facing the sharpest increase. Donghoon Lee, an economic research advisor at the New York Fed, highlighted that the rise in credit card delinquency rates is widespread across individuals with varying income levels and residing in different regions. However, it is particularly acute among millennials and individuals burdened by auto loans or student loans.

During the third quarter, approximately 5.78% of credit-card debts crossed the threshold into “serious” delinquency, indicating that these bills had not been paid for at least 90 days. In comparison, the rate stood at 3.69% during the same period last year. While all generations witnessed an increase in delinquent credit-card debt, millennials experienced the highest rate with over 9% of their debt falling into serious delinquency. This figure surpassed the 2019 level, which stood at approximately 6% for this age group. Additionally, credit-card delinquency rates rose most rapidly among low-income borrowers, as per data from the New York Fed.

These findings shed light on the mounting concern surrounding the escalating credit-card debt in the United States. As delinquency rates continue to soar, it is imperative for individuals to prioritize their financial well-being and seek proactive measures to manage their credit-card obligations effectively.

Millennials Struggle with Student Debt and Auto Payments

Millennials are facing the burden of significant student debt, which has been compounded by the purchase of cars during the pandemic when auto prices skyrocketed. This combination has put this group at a higher risk of financial hardship compared to others, warn researchers.

Rising Credit Card Delinquencies Raise Concerns

Although the total number of Americans falling behind on their credit-card bills is still below pre-pandemic levels, the gap is closing, according to research from the New York Federal Reserve. Disturbingly, individuals are increasingly becoming newly delinquent on their credit-card and auto bills. In the third quarter, approximately 2% of credit-card borrowers became newly delinquent, up from the pre-pandemic rate of about 1.8%, as revealed by the New York Fed data.

Pandemic Relief Provides Temporary Debt Reprieve

During the pandemic, government stimulus funds and limited spending opportunities alleviated some debt burdens for individuals. However, recent data from VantageScore shows a surge in newly delinquent debts in September. As the holiday season approaches, experts caution that the pressure to shop and buy gifts could further strain consumers’ financial well-being, which is already compromised by high inflation and interest rates.

Mixed Signals in Consumer Financial Health

The NY Fed’s household debt report highlights a discrepancy in consumer financial health. While consumer spending has remained strong, company CEOs have observed households cutting back on spending due to high inflation, even for necessities like food. Some economists argue that consumers may struggle to sustain their current spending levels, as real income growth has slowed and some households rely on their savings to fuel their expenditures.

Despite these challenges, it is crucial for millennials and all individuals to efficiently manage their debt and expenses to ensure long-term financial stability. Ongoing efforts to address student loan burdens and explore strategies for debt repayment are essential in helping individuals overcome these financial challenges.