Credit card balances jump 8.5% year over year – delinquencies rise

Dealing with credit card debt is becoming more and more difficult.

Americans now owe $1.12 trillion on their credit cards, the Federal Reserve Bank of New York reported Tuesday.

The average balance per consumer stood at $6,218, up 8.5% year over year, according to a separate quarterly credit industry report from TransUnion.

“Consumers continue to use credit, and particularly credit cards, as they navigate the world we face today,” said Charlie Wise, senior vice president of global research and consulting at TransUnion.

Rising prices and interest rates have put many households under pressure and prices continue to rise, although at a slower rate than before.

The consumer price index – a key barometer of inflation – fell gradually from a pandemic-era peak of 9.1% in June 2022 to 3.4% in April.

Young adults, in particular, have had to strain financially to cope with rising rents, exploding student loan balances and larger car loan payments, Wise said. “Rent, when you have it, car loans, utilities, these are all things that consumers prioritize over credit cards.”

As a result, credit card delinquency rates are higher overall, the New York Fed and TransUnion found. Over the past year, about 8.9% of credit card balances became delinquent accounts, the New York Fed reported.

“Serious delinquencies,” meaning late payments of 90 days or more, have reached their highest level since 2010, according to TransUnion research.

Learn more about personal finance:
More Gen Z cardholders are maxed out, New York Fed says
Americans Can’t Stop Saving: How to Avoid This Financial Trap
Shoppers are adopting “feminine calculations” to justify their luxury purchases

A total of 19.3 million additional new credit accounts were opened in the fourth quarter of 2023, driven in part by subprime borrowers seeking cards with higher limits, according to Wise. Subprime generally refers to those with a credit score of 600 or lower, according to TransUnion.

“While access to credit and loans can provide a lifeline for families struggling to meet their basic needs, relying too much on these financial coping strategies can lead to financial instability if families are struggling to keep up with their debts or are not recovering from using up their savings. intended for everyday expenses,” said Kassandra Martinchek, senior research associate at the Urban Institute.

Credit cards are one of the most expensive ways to borrow money. The average credit card charges a near-record 20.66%, according to Bankrate.

“If you have credit card debt, it’s probably the most expensive debt, by far,” said Ted Rossman, senior industry analyst at Bankrate. “Reimbursement must be a priority for households.”

At an average annual rate of 20%, if you made minimum payments on your average credit card balance ($6,218), it would take you 18 years to pay off the debt and cost you more than $9,200 in interest. Rossman calculated.

“Try to pay way more than the minimum – pay for everything if you can,” Rossman said.

Otherwise, switch to an interest-free balance transfer credit card “to pause the interest clock for up to 21 months,” he advised, “or take a side hustle, selling things you don’t have don’t need to or reduce your spending so you can devote more money to your debt repayment efforts.

Subscribe to CNBC on YouTube.