US Credit Card Defaults Hit Highest Level Since 2010
The rate of U.S. credit card defaults has surged to its highest point since 2010, as lower-income borrowers face increased expenses and diminishing savings.
The rapid increase in credit card write-offs is occurring amid a backdrop where consumers—especially those with limited financial resources—are grappling with high-interest rates and rising living costs, as highlighted in the report.
“High-income households are managing well, but the bottom third of U.S. consumers are running on empty,” Mark Zandi, head of Moody’s Analytics, stated. Analysts indicate that the spending power of vulnerable borrowers has declined as inflation continues to erode their disposable income.
The rise in write-offs follows a period of strong consumer spending following pandemic-related restrictions, during which many Americans accrued savings and lenders expanded credit card offers aggressively.
The series of interest rate hikes by the Federal Reserve, implemented to address high inflation, has kept borrowing costs at a high level.
For many Americans, this situation results in a triple whammy: rising prices, increasing credit costs, and reduced savings.
“Consumer spending capacity has significantly declined,” stated Odysseas Papadimitriou, head of the consumer credit research firm WalletHub.
He observed that since the start of the year, an increasing number of borrowers have been failing to make their monthly payments within one billing cycle, which could indicate potential future losses for card issuers.
Consumers currently carrying revolving balances might continue to endure historic finance charges longer than expected. Economists warn that if inflation persists along with any increase in interest rates, households that are already struggling with credit card payments will be subjected to further pressure.
In the meantime, delinquency rates remain noticeably higher than pre-pandemic levels, indicating ongoing financial strain.
“Delinquencies suggest more difficulties are on the horizon,” commented Papadimitriou.