Credit card delinquencies increased during the first three months of the year. According to the Federal Reserve Bank of New York, 1 in 6 card users are “maxed out,” using at least 90% of their credit limit.
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Credit card delinquencies increased during the first three months of the year. According to the Federal Reserve Bank of New York, 1 in 6 card users are “maxed out,” using at least 90% of their credit limit.
Justin Sullivan/Getty Images
More and more Americans are behind on their credit card bills.
About 8.9% of credit card balances fell into delinquency over the past year, according to the Federal Reserve Bank of New York — a sign that a growing number of borrowers are feeling the pressure of rising prices and high interest rates.
“Everything is more expensive. Debt is more expensive. Rent is more expensive. Food, gas, everything,” says Charlie Wise, senior vice president of TransUnion, the credit reporting company. “Even with the relatively healthy wage increases we’ve seen over the past few years, many consumers simply can’t keep up with the price pressure.”
Maxed out borrowers are a big concern
The New York Fed report shows that the difficulties are not evenly distributed. While many households have a solid financial foundation, nearly one in five Americans are “maxed out,” using at least 90% of their credit card limit. That’s concerning, the report said, because maxed out borrowers are much more likely to fall behind on their bills.
People under the age of 30 and those living in low-income neighborhoods were particularly likely to be maximally affected, the report found. Among Gen Z borrowers, about 1 in 6 were close to maxing out their credit, compared to 4.8% of baby boomers.
About half of borrowers carry their balances from month to month
Overall credit card balances totaled $1.115 billion in the first quarter of the year, up $129 billion from last year. For card users who pay their balance in full each month, this isn’t a problem. But according to Bankrate, about 44% of borrowers carry credit card debt from month to month.
“The credit card market is really the proverbial tale of two cities,” says Ted Rossman, senior industry analyst at Bankrate. “There are about half of cardholders who pay in full and get great perks like rewards and buyer protections. And then there’s more or less the other half who can easily get trapped in a costly debt cycle.”
Credit card debt is very expensive, with the average interest rate exceeding 20%. Rossman says borrowers who make just the minimum monthly payment can take nearly two decades to pay off their debt. On an average balance of $6,360, interest alone would total $9,500.
“Time is not your friend if you are a consumer struggling with debt,” says Mike Croxson, CEO of the National Foundation for Credit Counseling. “Chances are as you pay minimums, miss minimum payments and other things, those rates will continue to increase.”
Credit card delinquency rates are increasing
Early in the pandemic, when spending options were limited and the federal government was sending relief payments, many people paid off debt and credit card delinquencies fell to historic lows.
This trend has now been reversed. Credit card delinquencies have returned to pre-pandemic levels, despite rising wages and a low unemployment rate.
“The consumer has been pretty strong throughout this recovery,” said a New York Fed researcher, who spoke on condition of anonymity. “One thing that might be concerning about this is why delinquency rates might increase for consumers during what we view as a strong job market and economy. So the fact that we’re seeing these phenomena is something we’re keeping an eye on.”
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