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Credit Card Delinquencies Reach Grim Milestone As Inflation Continues To Crush Americans

(Official White House Photo by Cameron Smith)

Credit card delinquencies reached the highest level since at least 2012 as Americans continue to grapple with high inflation and interest rates, according to a report from the Federal Reserve Bank of Philadelphia published Wednesday.

At the end of March, 2.59% of credit card balances were more than 60 days overdue, more than double the lows of the COVID-19 pandemic, and the highest since the Philadelphia Fed began tracking the data 12 years ago, according to the bank’s analysis of credit card and mortgage data. The same trend affected credit card borrowers who were 30 and 90 days or more past due.

Elevated credit card delinquencies could add to concerns about the U.S. economy, as consumer spending accounts for over 70% of the U.S. gross domestic product(GDP).

US households have piled on an enormous amount of credit card debt in just 3yrs (far faster than the previous cycles)

Meanwhile non-mortgage interest payments have exploded to record highs.

Lastly, credit card avg. carry balances ($7,500)

At record APRs, this is brutal pic.twitter.com/sdv4TboPWr

— Cejay Kim (@cejaykim) March 16, 2024

Record delinquencies come as consumers grapple with high inflation and borrowing costs. Inflation has risen more than 20% since President Joe Biden took office in January 2021, and the federal funds rate has reached its highest levels since 2001, driving up borrowing costs for consumers and businesses alike.

The personal savings rate has fallen from over 25% during the pandemic to just 3.9% in May, according to the Federal Reserve and the most recent data from the Bureau of Economic Analysis, putting further strains on consumer spending.

The Federal Reserve raised rates 11 times between March 2022 and January 2024, according to consumer financial services company Bankrate. The Fed maintained the elevated federal funds rate at the most recent Federal Open Market Committee (FMOC) meeting in June, marking the seventh in a row where the Fed chose not to adjust the rate.

The total number of credit card originations fell by 5% in the first quarter, as holiday spending from the fourth quarter slowed, but total revolving balances rose to a record of $628.6 billion, according to the Philadelphia Fed report. Revolving balances now represent 71.3% of total outstanding balances, the highest level since 2021.

“Account holders who are behind have larger balances left unpaid,” the authors of the Philadelphia Fed study Victor Osorio and Daniel Collins noted in their report.

The rise in credit card debt shows no signs of slowing as the average interest rate on a credit card sits above 20%, according to Bankrate. High APR’s leave borrowers more exposed to debt traps, where they are forced to take on additional loans in order to pay off pre-existing debt. At current APR levels, it would take an individual who owes $5,000 in credit card debt 279 months and $8,124 in interest to pay off the debt making minimum payments, according to Fox Business.

Mortgage originations hit a series low of $44.4 billion in the first quarter of 2024, as potential homebuyers are unwilling to take on new mortgages at elevated rates, according to the Philadelphia Fed.

“The Philadelphia Fed has no additional comments,” the bank replied in response to a request for comment from the Daily Caller News Foundation.

Featured image credit: (Official White House Photo by Cameron Smith)