Payments

Credit card balances are sky-high and a tenth of consumers are locked into persistent debt

  • Credit card balances have hit a new high of $1.079 trillion, rising $154 billion from last year.
  • Delinquencies are also rising in tandem, and a tenth of consumers are locked in persistent debt.
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Credit card balances are sky-high and a tenth of consumers are locked into persistent debt

Credit card balances have hit a new high of $1.079 trillion, rising $154 billion from last year, which is the highest year-over-year increase in balances since 1999, according to data by the Federal Reserve Bank of New York. 

Meanwhile, credit card delinquencies are also growing in tandem. 

“The share of newly delinquent credit card balances is growing at a considerable rate — over 50% year-over-year for the third quarter running. That’s the fastest clip in at least 20 years. It’s important, however, to share this additional context: The rapid increase comes on the heels of 7 double-digit YOY decreases in the data during 2020 and 2021,” said Elizabeth Renter, data analyst and writer at NerdWallet.

The line chart shows total quarterly credit card balances in the U.S. from Q1 2018 through Q3 2023
Source: CNBC

These increases have come after newly delinquent credit card balances were decreasing during the pandemic. 

“People were able to manage their debt amidst government stimulus programs and debt forbearances. Now, any excess savings is depleted and households may have a harder time making their payments,” Renter said.

Consumers who were delinquent on their student loans are in more debt now than they were before, all of which paints a sobering picture of consumers’ financial health. 

At the moment nearly one-tenth of consumers are locked in “persistent debt” which means that they pay more in interest and fees than they've paid towards their credit card balance over an 18-month period, according to a report by the CFPB. 

And this cycle of debt is not easy to break, especially in the current interest rate environment. “Pandemic relief programs in 2020 and 2021 enabled some cardholders to pay down credit card balances, but the number of people facing persistent debt could climb if interest rates remain elevated,” wrote the CFPB. 

The current average interest rate is 23%, up from 17% before the pandemic according to Renter. “For folks who have to lean heavily on credit cards during times of financial stress, higher interest rates (even by single digits) can make it much more difficult to dig out,” she added. 

When debt starts to climb and customers are having trouble making ends meet, many consumers first cut expenses on their expenditure on food according to Anuj Vohra, head of North America collections, B2C operations at BMO Financial Group. 

In the face of financial adversity banks have the opportunity to transform the part they play in their communities. For example, BMO partners with social impact firm SpringFour to allow access to resources and programs that can help consumers’ with easing their financial burdens. 

“We're not in the business of collections. We're actually in the business of gathering information from a client, understanding what's going on in their lives and finding a solution for them,” said Vohra. 

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