New York Fed’s research shows that credit card delinquency is on the rise and Gen Z is accumulating debt!
A recent report on househould debt, released by the New York Fed’s Center for Microeconomic Data unveils that delinquency credit card usage is on the rise, pointing out that Americans collectively owe a staggering $1.12 trillion on their cards.
Despite credit card balances decreasing by $14 billion in the first quarter of 2024, as a result of the typical spending trends post-holiday season, there’s a concern with the increase of delinquency rate, especially among young adults aged 18 to 29. Burdened by student loan debts and increasing living expenses, these young adults are having a hard time maintaining themselves. The study also noted that these younger borrowers have shorter credit histories and lower credit limits, increasing the likelihood of maxing out their cards and missing payments.
The New York Fed researchers emphasized that while overall balance sheets “are very good”, the rise in delinquency rates indicates ” increased stress among some segments of the population”. According to the research, approximately 8.9% of credit card balances slipped into delinquency over the past year.
Why Are Americans Accumulating Debt
A report by Bankrate from January highlights that many consumers are feeling the weight of higer prices, especially for essentials like food, fuel, and housing. In addition to that, more cardholders are dragging debt from month to month or delaying payments. Bankrate’s senior industry analyst, Ted Rossman, points out that high inflation and interest rates are exacerbating Americans’ debt burdens, making it even harder to manage.
As if dealing with that isn’t already hard enough, they also face lower wages compared to previous generations when adjusted for inflation. On top of that, they deal with massive student loan debts. Rising prices and interest rates makes significant purchases even more difficult, adding to their financial challenges.
Credit Card Rates Are Above 20%
Credit card rates, already elevated in recent years, surged with the Federal Reserve’s 11 rate hikes since 2022, turning it into one of the costliest borrowing methods. According to Bankrate, the average annual percentage rate currently exceeds 20%, marking a historical high. Rossman predicts that with the Federal Reserve likely maintaining higher rates for an extended period, credit card rates will remain at elevated levels.
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