According to report, credit card debt hits a record high and Americans now owe $1.14 trillion!
Americans owe a record of $1.14 trillion on credit card, according to a recent report from the Federal Reserve Bank of New York on household debt. The report showed that credit card balances increased by $27 billion in the second quarter of 2024, a 5.8% rise compared to the previous year.
It also revealed higher credit card delinquency rates, especially among younger adults aged 18 to 39, who were likely more affected by the COVID-19 pandemic. The researchers noted that these younger borrowers might have overextended their finances during the pandemic. Delinquent borrowers often have shorter credit histories, lower credit limits, and are more likely to rent, making them financially vulnerable and more prone to missing payments.
In the past year, around 9.1% of credit card balances turned into delinquency. According to Brett House, an economics professor at Columbia Business School, homeownership has been a significant wealth-building tool, ever since the pandemic. Those who couldn’t enter the housing market have faced challenges in achieving financial stability.
Many millennials facing delinquency entered the job market during the Great Recession, experiencing long-term negative effects of graduating into an economic downturn. Studies shows that starting a career in a high-unemployment period can lead to lower lifetime earnings.
Half of Americans Carry a Balance
A survey by Achieve found that 57% of consumers now use credit cards to make ends meet, and 36% struggle to pay recurring debts on time. The survey, conducted in June with 2,000 adults holding different kinds of consumer debts, revealed that most people who missed payments pointed out job loss or reduced income as the main reasons.
According to Bankrate, half of credit cardholders carry debt from month to month. Ted Rossman, a senior industry analyst at Bankrate, explained that high inflation and interest rates have reduced Americans’ savings, leading to more debt over longer periods.
As the Federal Reserve raised interest rates to control inflation, credit card rates, which are typically variable, also increased. The average credit card rate has now reached over 20%, nearing an all-time high.
Rossman emphasized the importance of paying off credit card debt quickly, especially with rates this high. For instance, with an annual percentage rate of 20%, making only minimum payments on an average credit card balance of $6,218 could take 18 years to pay off and result in over $9,300 in interest.