Consumer Stress Intensifies as Credit Card Delinquencies Rise
Consumer stress has reached a 12-year high, with a growing number of credit card holders making only minimum payments on their bills, according to a Philadelphia Federal Reserve report. The share of active holders making baseline payments on their cards jumped to 10.75% in the third quarter of 2024, a series high since 2012.
The trend is part of a continuing pattern that began in 2021 and has accelerated as average interest rates have soared and delinquencies have increased. The share of card holders more than 30 days past due rose to 3.52%, an increase from 3.21%, for a gain of more than 10%. This is more than double the delinquency level of the pandemic-era low of 1.57% hit in the second quarter of 2021.
Despite the rising delinquency rate, the pace is still well below the 6.8% peak during the 2008-09 financial crisis and not yet indicative of serious strains. However, the trend is concerning, as average credit card rates have climbed to 21.5%, or about 50% higher than three years ago.
Consumers are also feeling the pinch in other areas, such as mortgage originations, which hit a more than 12-year low in the third quarter. Debt-to-income ratios on home loans are also on the rise, hitting 26% most recently, or 4 percentage points higher over the past five years.
The trend is not encouraging, as consumers are increasingly turning to credit cards for essentials and making minimum payments, which can lead to financial difficulties. With average credit card balances at $10,563, it would take 22 years and cost $18,000 in interest when just paying the minimum.