US Credit Card Debts Rise, More Americans Become Delinquent: NY Fed

A customer uses a Bank of America ATM at a branch office in San Francisco, Calif., on July 14, 2021. Justin Sullivan/Getty Images

Credit card debts and delinquency rates among Americans increased in the first quarter of 2024, with newly delinquent individuals having a high median credit card utilization rate of 90 percent.

Household credit card debt in the United States rose by $129 billion over the past year, reaching $1.15 trillion as of Q1 2024, according to the latest data from the Federal Reserve Bank of New York. In Q1 2023, the share of credit card debt that was 90 days or more delinquent was 4.57 percent.

This jumped to 6.86 percent in Q1, 2024. The rate of credit card debts transitioning into “serious delinquency continued to rise across all age groups,” said Joelle Scally, the regional economic principal within the household and public policy research division at the New York Fed.

“An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households.”

In a May 14 post to Liberty Street Economics, New York Fed economists noted that a key factor “strongly correlated” to future defaults is the high utilization rate of credit cards. The aggregate credit card utilization rate was roughly 23 percent in the first quarter.

However, this varied based on users. Fifty-two percent of borrowers “were using less than 20 percent of their available credit in the first quarter, while 18 percent of borrowers were using at least 90 percent of their available credit.”

Borrowers who were “current” on their cards had a median utilization rate of only 13 percent. Those who became newly delinquent this year had a median utilization rate of 90 percent.

“This makes sense, since using practically all of your available credit could indicate a tight cash-flow situation,” according to the report, which noted that credit card utilization is a key input in credit scores used to determine the probability of defaulting in the future.

Credit card users in the utilization groups of 0-20 percent and 20-60 percent had delinquency rates that are now at pre-pandemic levels. In contrast, among users with utilization rates higher than 60 percent, card defaults have surpassed pre-pandemic levels and continue to rise. They make up most of the overall increase in credit card delinquency rates.

This increase was found to be “especially remarkable” among the 90-100 percent utilization group, also known as “maxed-out” borrowers.

“About a third of balances associated with maxed-out borrowers have gone delinquent in the last year, compared to less than a quarter of balances per year before the pandemic.”

In terms of demographics, only 4.8 percent of “baby boomers” had maxed out their credit cards compared to 15.3 percent of “Gen Z individuals.”

Credit card users made massive paydowns in 2020 and 2021 when they were receiving pandemic-related transfers and assistance.

“Since the economy reopened in 2022 and consumption was very strong in 2022 and 2023, credit card balances increased again, resulting in a rise in the share of maxed-out borrowers and their balances. These shares remain slightly lower than the pre-pandemic level but are edging back up,” the report stated.

In short, the share of maxed-out borrowers has been rising from pandemic lows while delinquency transition rates from such maxed-out users are also on the uptick, which then ends up resulting in higher overall credit card delinquency transition rates.

“If these trends continue and other factors influencing delinquencies remain the same, credit card delinquencies are likely to continue to rise.”

Struggling With Credit Card Debt

According to a Jan. 8 survey by Bankrate, 49 percent of respondents with credit cards said they were carrying a balance from month to month, up from 39 percent in 2021.

Forty-three percent said they carry credit card balances primarily due to an unexpected or emergency expense. Such expenses include unexpected medical bills (11 percent), critical car repairs (10 percent), home repairs (9 percent), and other emergency repairs (14 percent).

Another key reason for people carrying credit card debts was to meet day-to-day expenses. Twenty-six percent of survey participants said their card balance comes from paying for groceries, utilities, and child care.

“Over the past two years, Americans’ credit card balances have skyrocketed 40 percent, according to the New York Fed,” said Bankrate senior industry analyst Ted Rossman.

“And most cardholders’ rates have risen five-and-a-quarter percentage points during that span as a result of the Fed’s rate hikes meant to combat inflation. It’s no wonder, then, that we’re seeing more people carrying more debt for longer periods of time.”

Since March 2022, the U.S. Federal Reserve has raised the federal funds rate, thus pushing up credit card rates as well. Higher rates indicate that credit card owners will now pay more in interest for the same amount of debt compared to a few years ago.

A May 7 Bankrate survey showed that 47 percent of adults carrying credit card balances intend to pay off the debt.

However, 22 percent felt overwhelmed by the debt, while 16 percent were concerned they wouldn’t be able to make the minimum required payments sometime within the next six months.

“If you have the average credit card balance and you only make minimum payments at the average rate, as of April 2024, you’ll be in debt for more than 18 years and you’ll owe more than $9,500 in interest. It’s so important to come up with a better payoff plan,” Mr. Rossman said.