Americans collectively owe $1.12 trillion on their credit cards, according to a new household debt report from the Federal Reserve Bank of New York.
Consistent with typical spending patterns after the peak holiday season, credit card balances fell by $14 billion in the first quarter of 2024. But delinquency rates on credit cards have increased, particularly among young adults or borrowers aged 18 to 29. burdened by high levels of student debt and high costs across the board, the New York Fed found.
These Gen Z borrowers also have shorter credit histories and lower credit limits, making them more likely to max out their credit cards and miss a payment, the the researchers found.
“The overall results are very good, but what the delinquency rates clearly show is that there is increased stress among certain segments of the population,” New York Fed researchers said Tuesday at ‘a press conference.
Over the past year, about 8.9% of credit card balances became delinquent accounts, the New York Fed found.
Why more and more Americans are falling behind
Many consumers feel strained by rising prices – especially for food, gasoline and housing – and more cardholders are falling into month-to-month debt or falling behind on their payments, according to a separate Bankrate report from January.
“High inflation and high interest rates contribute significantly to Americans’ debt load and make that debt harder to repay,” said Ted Rossman, senior industry analyst at Bankrate.
However, those just starting out face additional financial challenges.
Not only are their salaries lower than their parents’ when they were in their 20s and 30s, after adjusting for inflation, but they also have larger student loan balances, according to recent reports.
Additionally, if they have purchased a car or made other major purchases in recent years, they will also face much higher monthly payments due to rising prices and rising interest rates. , the Fed researchers said.
“It makes sense that younger borrowers now face more difficulties,” they said.
Credit card rates exceed 20%
At the same time, credit cards have become one of the most expensive ways to borrow. Credit card rates, already high in recent years, have soared alongside the Federal Reserve’s string of 11 rate hikes since 2022, including four last year.
Since most credit cards have a variable rate, there is a direct link to the Fed’s benchmark. As the federal funds rate increased, the prime rate also increased, and credit card rates followed suit.
The average annual rate now stands at more than 20%, according to Bankrate, close to an all-time high.
“With the Fed likely to keep rates high for longer, credit card rates are likely to remain elevated for the foreseeable future,” Rossman said. “The national average will likely end the year above 20% for only the second time.”
What to do if you have credit card debt
“Interest rates aren’t going down anytime soon, but you still have options, especially if you have good credit,” said Matt Schulz, chief credit analyst at LendingTree.
If you carry a balance, try calling your card issuer to ask for a lower rate. Or you can consolidate and pay off your high-interest credit cards with a low-interest home equity loan or personal loan, or switch to a no-interest balance transfer credit card, Schulz said.
Learn more about personal finance:
Americans Can’t Stop Saving: How to Avoid This Financial Trap
Americans are splurging on travel and entertainment
Shoppers are adopting “feminine calculations” to justify their luxury purchases
To maximize their credit card benefits, consumers should regularly compare credit card offers, pay off as much of their balance as possible as soon as possible and avoid paying their bills late, according to Mike Townsend, a spokesperson for the credit card. American Bankers Association.
“Any credit card holder who finds themselves in a difficult financial situation should always contact their card issuer to inform them of their situation,” Townsend said. “They may be entitled to relief or assistance depending on their individual circumstances.”
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