US News

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.

In the first nine months of 2024, credit card lenders wrote off $46 billion in seriously delinquent loan balances, a substantial 50 percent rise compared to the same timeframe in 2023. This figure represents the highest level in 14 years, according to a report from the Financial Times, which references industry data compiled by BankRegData.

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.

From 2022 to 2023, credit card balances grew by several hundred billion dollars, eventually exceeding the $1 trillion threshold for the first time in mid-2023. The increased balances are now resulting in heftier monthly interest bills, further straining households unable to settle their debts entirely.

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.

Although there are hopes that the Federal Reserve might shift towards substantial rate reductions in 2025, officials have recently suggested a more gradual timeline for any cuts.

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.

Even though card issuers have written off tens of billions in bad debts, approximately $37 billion in credit card balances are still overdue by at least a month, as reported—a trend that is rising as financially strained consumers continue borrowing to spend.



Source link

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.