Credit card delinquency soars above pre pandemic level amid high interest rates, inflation

Credit card delinquencies surpassed pre pandemic levels — and are approaching heights not seen in more than a decade — as high interest rates make it tougher for inflation battered shoppers to keep their heads above water. With outstanding credit card balances surpassing $5 trillion for the first time last November, all stages of credit card delinquencies – 30, 60 and 90 days past due – are higher than in 2019, according to a Philadelphia Federal Reserve report.

The rate for credit card holders who were 30 days late was 3.19%, up from 2.76% the previous quarter, the Philly Fed researchers found. Those who hadn’t paid in 60 days or more spiked to 2.21% from 1.91%, and serious delinquency of three months or more rose to 1.52% from 1.32%, according to the data.

“Greater consumer fragility” is also seen in the growing number of consumers who are not paying their bills in full each month, with just 33.2% of card accounts paying off their balance – or the lowest percentage since the fourth quarter of 2020, according to the Fed report, which looked at credit card and mortgage data through the third quarter of 2023.

Consumers who are not paying their bills in full each month are paying dearly for their credit. The annual average interest rate on credit cards is about 21%, with some cards charging nearly 30% for those who roll over their bills. Those who opt to make just the minimum payment on an average credit card balance of $6,000 — at the average rate of 20.74% — would be in debt for more than 17 years and end up paying $9,000 in interest, Ted Rossman, senior analyst with Bankrate told CNN.

“Just paying 20%+ interest every month, the minimum payment math is brutal,” Rossman said. At the same time, it’s getting harder to qualify for credit as banks mitigate their risk. The percentage of card accounts receiving a credit line increase has been dropping with more banks decreasing consumers’ credit lines instead.

There are already 70 million more credit card accounts open now than before the pandemic in 2019. The rise in delinquencies is in sharp contrast to consumers spending habits during the pandemic –when they were getting government subsidies and used some of the funds to pay down their credit card debt, which reached historic lows in 2021.

Some experts predicted that last season’s holiday spending could tip the scales for budget squeezed consumers . Buy now pay later payment options like Klarna and Afterpay were up 40% year over year on Black Friday and Cyber Monday, according to data from Adobe. Compounding consumer debt problems are student loans, which came due in October after a three year pause granted by the Biden administration.

Some 40% of the 22 million borrowers who had bills due after Biden’s one time forgiveness plan fell through did not make their October payments by mid November, Bloomberg reported, citing data from the US Department of Education. There are signs that even fewer student borrowers made payments in November..