Credit card delinquency rates rise, experts offer advice

Severely overdue credit card debt is at a 14-year high, with people aged 35 and under struggling to pay their bills more than other age groups. (Mike Stewart/AP Photo)

NEW YORK — Severely overdue credit card debt is at its highest level in more than a decade, and people 35 and younger are struggling to pay their bills more than other age groups.

The share of credit card debt that is seriously delinquent (defined as more than 90 days past due) rose to 10.7% in the first quarter of 2024, according to the New York Federal Reserve. A year ago, only 8.2% of credit card debt was seriously delinquent.

Anyone at risk of delinquency should contact a nonprofit credit counselor as soon as possible, said Bruce McClary, senior vice president at the National Foundation for Credit Counseling. Some of these consultants can be found through his organization. Consultations are free; unbiased advisors can guide you to long-term solutions.

McCrary said nonprofits can also help create debt management plans with lower interest rates, no late fees and no monthly payments. These plans may come with maintenance fees, which vary, but are offset by the overall savings in debt. McCrary urged borrowers to beware of scammers and for-profit debt consolidation companies, which often charge much higher fees than nonprofits. The Consumer Financial Protection Bureau has a helpful classification comparison of the two.

Martin Lynch, president of the American Financial Counseling Association, echoed the recommendation.

“For many people, taking the first step and contacting a counselor is difficult,” Lynch said. He stressed that indebted consumers should try to “relax first” and be as honest as possible with a counselor about their situation.

“You will talk to someone for free and he will listen to you describe your situation,” he said. “You can share your concerns without being judged for being stuck.”

Lynch and McCrary urge borrowers to contact their credit card companies directly to negotiate interest rates, fees and long-term payment plans. They note that it is in the best interest of the company to pay off the debt before it goes into collections. “The best thing to do is reach out, honestly assess your ability to pay, and ask what options are 'on and off the menu,'” McCrary said. He said such wording can provide creditors with greater leverage. elasticity. McCrary and other experts stressed that most credit card companies and lenders have hardship plans in place for situations like this. Such options have gained traction during the COVID-19 pandemic as more companies publicly advertise that consumers facing hardship can skip or defer payments without penalty.

LendingTree data shows the average annual interest rate on new credit cards is 24.71%, the highest since the company began tracking in 2019. Inflation peaked at 9.1% in June 2022.

Meanwhile, pandemic-era aid such as stimulus payments, child tax credits, increased unemployment benefits and student loan payment moratoriums have ended. Wage increases have not fully kept up with inflation, hitting lower-income consumers harder, and rising rents have eaten into the savings some consumers may have accumulated early in the pandemic.

Silvio Tavares, CEO of VantageScore, a credit score modeling and analysis company, said delinquency rates have now exceeded pre-pandemic levels, and renters are particularly vulnerable to falling behind. “Young people and less affluent people are experiencing challenges,” he said, with high interest rates affecting them. Tavares said the most important things borrowers can do is understand their credit score and make timely payments to avoid paying extra interest on revolving balances and debt. He warned consumers against overusing buy now, pay later loans, which are increasingly available “at every checkout”.

Credit cards account for only about 6.5% of consumer debt, but increases in delinquency rates appear to be outpacing income growth, according to Bank of America Global Research.

McClary said there may also be a large group of consumers who are temporarily paying the minimum balance and avoiding defaulting on their debt, but who are too financially stressed to pay their balance in full. A worsening economy could push these consumers into serious delinquency, he said.

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