Credit card delinquency rates surge

Data released Tuesday by the New York Federal Reserve showed that more Americans are falling behind on their monthly credit card payments as they continue to battle high inflation and interest rates.

Credit card delinquency rates have exceeded pre-pandemic levels and continued to rise in the three months from January to March.

On an annualized basis, the flow of credit card debt into delinquency reached 8.9% in the first quarter, compared with 8.5% in the previous quarter and 5.87% at the end of 2023. highest level.

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“Severe delinquency rates for credit cards and auto loans continued to rise across all age groups in the first quarter of 2024,” said Joelle Scally, regional economic director for the Household and Public Policy Research Department at the Federal Reserve Bank of New York.

“An increasing number of borrowers are missing credit card payments, indicating worsening financial distress for some households.”

Credit card used to pay for gas

In this photo illustration, people use credit cards to pay for gas on February 7, 2024, in San Anselmo, California. (Justin Sullivan/Getty Images/Getty Images)

New York Fed researchers aren't sure why delinquency rates have risen so significantly amid low unemployment, but they have proposed several theories.

Consumers may have depleted the excess savings they accumulated during the pandemic but are still spending at high levels — even though the money has disappeared. The surge could also be the result of labor market turmoil. Americans lose their jobs and then find lower-paying jobs elsewhere.

Another possibility is that some Americans' credit scores artificially improved when reporting of student loan debt to credit bureaus stopped during the pandemic. As a result, this expands the pool of people eligible to receive credit cards.

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“These are complex problems of all kinds,” the researchers said. “We don't know exactly what's behind the increase in delinquencies. But it's definitely something we're tracking.”

Multiple credit cards lying on the table

A new rule from the Biden administration sets an $8 cap on credit card late fees. (Matt Cady/Getty Images/Getty Images)

Increases in credit card use and debt are particularly concerning because interest rate It's astronomically high. The average annual interest rate (APR) for credit cards hit a new record of 20.72% last week, according to a Bankrate database dating back to 1985.

If people take on debt to cover price increases, they may end up paying more for items in the long run. For example, if you owe $5,000 in debt (the average American owes), current APR levels mean it will take approximately 279 months and $8,124 in interest to pay off the debt and make the minimum payment.

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When the balance increases Federal Reserve's Aggressive interest rate hikes seek to tame stubborn inflation and cool the economy.

Although Inflation has cooled That number has increased 3.7% in recent months from a year ago, according to the latest Labor Department data.

Soaring inflation has put severe financial pressure on most American households, forcing them to pay more for everyday necessities like food and rent. This burden is borne disproportionately by low-income Americans, whose already stretched salaries are severely affected by price fluctuations.

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