Rising delinquencies on credit cards show that Americans are having difficulty managing their debt — and some people are struggling more than others.
The Federal Reserve Bank of New York's quarterly report on household debt shows that credit card delinquencies increased across demographics in the third quarter (July through September), and millennials and borrowers with auto loans and/or student loan debt disproportionately drove that growth.
The average credit card interest rate is currently hovering above a whopping 20%, compared to just 14.5% in November 2021, before rates started surging. Now that student loan payments have resumed after the three-year forbearance period imposed at the start of the pandemic, the New York Fed says repayment challenges will likely continue for borrowers.
Credit card balances and delinquencies rise
Household debt balances swelled in the third quarter, especially for credit cards and student loans, totaling $1.08 trillion. Credit card balances jumped $154 billion year over year, the largest annual uptick since the New York Fed started tracking consumer debt in 1999.
The data shows that credit card borrowers are falling behind on their payments: 2% of them transitioned into delinquency, which means payment is 30 days or more past due on at least one account. That’s up from 1.7% in the first and second quarter of this year and higher than the 1.7% average between 2015 and 2019.
During the pandemic, credit card delinquencies fell to historic lows, making it inevitable that they would eventually increase, the New York Fed report says. But delinquencies have now surpassed pre-pandemic levels, mostly thanks to student and auto loan borrowers and millennials, whom the New York Fed defines as being born between 1980 and 1994.
About 2.9% of millennial credit card borrowers were newly delinquent in the third quarter of this year, surpassed only by Gen Z credit card borrowers at 3.1%. While Gen Z borrowers have the highest delinquency rates of any age group, their current rate is on par with their 2019 average, according to the report. Millennial credit card borrowers’ delinquency rate is now .4 percentage points higher than it was in the third quarter of 2023.
Borrowers with auto loans, student loans or both were also more likely to fall behind on their payments compared to pre-pandemic times. Roughly 3.7% of borrowers with both auto and student loan debt were newly delinquent in the third quarter of 2023, compared to 3% in the third quarter of 2019.
Auto loan costs have reached new heights in recent years due to rising car prices and interest rates. The average payment for a new vehicle is now more than $700 a month, according to an October Edmunds report, and the average auto loan interest rate for new vehicles was 7.4% in the third quarter of this year.
Paying off credit card debt
Many Americans began relying on credit cards as a way to cope with surging inflation that began in 2021. The return of student loan payments in September is also making debt repayment more difficult for many borrowers.
The central bank’s inflation-busting rate hikes have pushed the average credit card interest rate to more than 21%, according to the Fed’s latest numbers. The New York Fed says it expects credit card delinquencies will continue to climb.
Check out Money's advice for paying off credit card debt if you're trying to eliminate your balance before it snowballs into an even bigger burden. Among the options is debt settlement. While there’s no guarantee your lender will agree to debt settlement, there are companies that can help you negotiate lump-sum payments for less your balance. Keep in mind that there are some risks to debt settlement — it can damage your credit score, and you also have to pay the third-party company’s fees if you choose to work with one.
Credit counseling is another option, particularly if you feel your debt level is manageable but need some guidance. Counseling is often provided by nonprofit organizations that can give you debt management education, planning and resources.
Consolidating your debt can give you more time to pay down your balance without accruing as much interest. You might consider transferring your balance to a personal loan with a lower interest rate: Currently, the average rate for personal loans is a little over 12%, much lower than the average for credit cards. Even better, you can avoid interest altogether if you qualify for a balance transfer credit card that offers a 0% APR period, which usually ranges from six to 21 months.
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