Credit Card Debt in the US Reaches a Billion, Default Rates Soar
The total amount of credit card debt in the US has surpassed one trillion dollars, a milestone that highlights the financial struggles of American consumers. The debt, which rose by $270 billion in 2022 and 2023, has been fueled by increased access to credit cards for low-income households during the COVID-19 pandemic.
In the first nine months of 2024, credit card companies have written off a record $46 billion in uncollectible debt, a 50% increase from the previous year. This is the highest level of delinquencies since the 2008 financial crisis.
According to Moody’s Analytics, households with high incomes are faring well, but those with lower incomes are struggling. “Households with high incomes are doing okay, but the bottom third of US consumers is broke, with a savings rate of zero” said the company’s chief.
The Federal Reserve’s interest rate hikes, implemented to combat rising inflation, have also contributed to the problem. The rate increases have disproportionately affected low-income households, who are already struggling to make payments.
Capital One, the third-largest credit card company, reported a 1.9 percentage point increase in its delinquency rate to 6.1% in November, up from 5.2% a year earlier.
The high interest rates and delinquencies are a double whammy for low-income households, who are unable to make regular payments and are thus paying a higher proportion of their debt in interest. The Federal Reserve has announced that it will not cut interest rates by more than half a percentage point in the coming year, which may exacerbate the problem.
The rate of overdue credit card debt, while showing a slight decline from its July peak, remains 1% higher than pre-pandemic levels.
The incoming US administration’s trade policies, as announced by President-elect Donald Trump, could further complicate the situation, particularly for low-income households, by potentially leading to higher inflation.