The share of credit card holders making only minimum payments has reached a 12-year high, signaling increasing financial pressure on consumers. While consumer spending remains robust, the rising delinquency rates and reliance on credit for essential purchases raise concerns about the long-term health of the economy.
The share of active credit card holders just making minimum payments climbed to 10.75% in the third quarter of 2024, marking the highest level since records began in 2012. The percentage of cardholders over 30 days past due also surged to 3.52%, a significant increase from 3.21% in the previous quarter. This represents a more than 10% jump and more than doubles the delinquency level seen during the pandemic's low point in the second quarter of 2021.
While these figures indicate a concerning trend, they remain below the 6.8% peak witnessed during the 2008-09 financial crisis, suggesting that the economy is not yet experiencing serious strain. Experts caution that the situation is fluid and could change rapidly. Consumer spending, a key driver of the US economy, has continued to rise, albeit at a slower pace. Goldman Sachs reported that adjusted for inflation, consumer spending increased by 2.9% year-on-year in November. The firm predicts that consumer spending will moderate in 2025 but still grow at a healthy 2.3% real rate. However, the rising cost of borrowing, particularly on credit cards, is putting pressure on household budgets. The average credit card balance currently stands at $10,563, and making only minimum payments would take 22 years and cost $18,000 in interest. A recent survey by NerdWallet revealed that a substantial percentage of consumers are struggling to keep up with their credit card payments. The survey found that 22% of respondents stated they are only making minimum payments on their credit cards. This trend is further exacerbated by rising interest rates and the increasing use of credit cards for essential purchases. The Philadelphia Fed reported that the total amount owed on revolving credit has surged to $645 billion, a 52.5% increase since the second quarter of 2021. The report also highlights a concerning trend in the mortgage market. Mortgage originations have plummeted to a 12-year low in the third quarter, with the total value of new mortgages issued falling to $63 billion, a stark contrast to the $219 billion recorded in the third quarter of 2021. High mortgage rates are discouraging refinancing, and debt-to-income ratios on home loans are on the rise, reaching 26% – a 4 percentage point increase over the past five years.
Credit Card Delinquencies Consumer Spending Economy Inflation Interest Rates
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