Rising Credit Card Balances and Growing Financial Strain for Consumers
A recent report by the Philadelphia Federal Reserve Bank has revealed a growing trend of financial strain for consumers, as a record number of people are making only minimum payments on their credit card balances. In the third quarter of 2024, 10.75% of active credit card accounts paid only the minimum balance, the highest rate in 12 years.
The trend highlights an increasing reliance on credit cards amid higher costs for merchandise and inflation, with revolving credit card balances reaching $645 billion, representing 71% of total card balances. This is up from 65% in 2021, with delinquencies also on the rise.
The Federal Reserve’s overnight lending rate, closely tied to consumer loan rates, has increased to a range of 4.25% to 4.50%. This has made it more expensive for consumers to carry balances, exacerbating the issue. The higher Fed rates have also tightened credit access as banks adopt stricter lending standards for consumers.
Credit card defaults are at their highest levels since 2010, according to industry data collected by BankRegData. The holidays have played a significant factor in consumers incurring more debt, with research by LendingTree revealing that one in three Americans took on holiday debt. Credit card spending accelerated in December, with consumers spending on dining and retail. More than one in 10 people reported that the holidays “blew up” their credit card debt.
