Americans Increasingly Can’t Afford Credit Card Payments as Delinquencies Hit Record Highs

Credit cards in a photo illustration. Matt Cardy/Getty Images

Americans are having more difficulty making payments on their credit card debt, according to a new report from the Federal Reserve, which shows credit card delinquencies surging to a record high.

The share of credit card accounts with past due debt payments has reached all-time highs at every time horizon—30 days, 60 days, and 90 days—according to fourth-quarter 2023 data from the Federal Reserve Bank of Philadelphia, which were released on April 10.

Cardholder stress was further highlighted in payment behavior, with the share of accounts making minimum payments rising 34 basis points from the prior quarter’s reading—and also hitting a record high.

That comes at the same time as nominal credit card balances moved up in the same period to their highest level on record, suggesting that Americans are increasingly relying on credit cards to finance their consumption.

Persistently high inflation—which accelerated again in March—has eaten away at household budgets, forcing people to spend more on basic necessities such as groceries.

Food price inflation over the past four years amounts to 24.9 percent, according to official U.S. government figures. However, an analysis of a basket of commonly purchased supermarket goods, carried out by The Wall Street Journal, estimates the true figure to be a whopping 36.5 percent.

Although the overall pace of inflation has fallen from the recent June 2022 peak of 9 percent, the latest data show that price pressures remain elevated, suggesting little immediate relief on the horizon for inflation-squeezed households, who report a growing probability of missing a minimum debt payment.

Growing Concern About Debt, Job Loss

American consumers surveyed by the New York Federal Reserve in March said that their average perceived probability of missing a minimum debt payment over the next three months has jumped by 1.5 percentage points, to 12.9 percent.

This is the highest reading since the COVID-19 pandemic hit, with the biggest increase among respondents ages 40 to 60 and among those earning less than $50,000 a year.

At the same time, consumers grew more pessimistic about future credit access, with a greater share expecting tighter lending conditions a year ahead.

This dovetails with the Philadelphia Fed credit card report, which noted that current credit scores at the 10th and 25th percentiles of cardholders fell to their lowest levels since 2020, indicating that “further performance deterioration could be on the horizon.”

Americans have also grown more fearful about their jobs. The New York Fed survey showed that the mean perceived probability of losing one’s job in the next year rose to 15.7 percent, the highest level since 2020.

Meanwhile, the perceived probability of finding a job if one’s current job were lost fell for the third consecutive month, to 51.2 percent, its lowest reading in nearly three years.

This tracks with recent labor market data. Job-cut announcements in the first quarter of this year rose 120 percent compared with the final quarter of 2023, according to a report from career transitioning firm Challenger, Gray & Christmas.

Recent inflation data showed that price pressures remain high, indicating that inflation remains sticky. The consumer price index, a common measure of retail inflation, rose to 3.5 percent in February, up from 3.2 percent the prior month.

Future inflation expectations are mixed, according to the New York Fed report. The one-year-ahead inflation expectations remained unchanged at 3 percent, while the three-year-ahead inflation expectations rose from 2.7 percent to 2.9 percent.

‘Persistent Inflationary Pressures’

JPMorgan CEO Jamie Dimon recently warned that inflationary pressures remain high and could last longer than many expect, with negative consequences for the U.S. economy.

Mr. Dimon wrote in an April 8 letter to shareholders that the forces of deglobalization and the Biden administration’s ongoing deficit spending are among the factors behind his concern about the future.

“We may be entering one of the most treacherous geopolitical eras since World War II,” Mr. Dimon wrote, warning that the effects of major economic and geopolitical forces—from high levels of debt and fiscal stimulus to the wars in Ukraine and the Middle East—could deliver negative surprises to markets.

“There seems to be a large number of persistent inflationary pressures, which may likely continue,” Mr. Dimon wrote.

He cautioned that businesses should plan for a “very broad” range of interest rates, from 2 percent to as high as 8 percent, or even higher.

The Federal Reserve has hiked interest rates to a range of 5.25 percent to 5.5 percent, with markets predicting cuts this year rather than more hikes.

Investors should also make contingencies for a soft landing—as well as a situation in which inflation stays high but a recession hits, known as “stagflation,” Mr. Dimon said.

“Economically, the worst-case scenario would be stagflation, which would not only come with higher interest rates but also with higher credit losses, lower business volumes, and more difficult markets,” he said.

The U.S. economy expanded at a solid 3.4 percent pace in the fourth quarter of 2023.

The Federal Reserve Bank of Atlanta’s latest real-time estimate of U.S. gross domestic product growth in the first quarter of this year is 2.4 percent, as of April 10.