Rising credit card debt signals trouble for low- and middle-income Americans
New Delhi: As the US economy shows signs of overall health, a worrying trend emerges low- and middle-income AmericansWho, after enduring inflation for more than two years, find themselves losing their savings and earnings significantly credit card debt, it financial stress is especially pronounced between tenant related Within these income groups, who are increasingly struggling to service their debt, the situation has been further exacerbated by recent reopenings. student loan payment,
why it matters
While the US economy is broadly healthy, Americans have been left with their savings and their credit card balances in their pockets after battling inflation for more than two years.
Experts worry that members of these groups — mostly low- and middle-income Americans who rent — are falling behind on their debts and could face a further deterioration in their financial health in the coming year, especially those People who recently resumed paying student loans.
big picture
Americans had more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and that figure is sure to rise after the Federal Deposit Insurance Corp. releases fourth-quarter figures next month.
A recent report from credit rating company Moody’s showed that credit card delinquency rates and charge-off rates, or the percentage of loans that banks believe will never be repaid, are now well above their 2019 levels. is up and is expected to continue rising.
These worrisome metrics coincide with an average interest rate on bank credit cards of nearly 21.5%, the highest since the Federal Reserve began tracking the data in 1994.
by numbers
Most analyzes of Americans’ financial health tell a tale of two consumers. On the one hand, there are about two-thirds of Americans who own homes and who have invested in the stock market and have done quite well. They generally had the savings needed to cope with high inflation. Crime rates among single-family homes remain at historic lows and home prices continue to rise.
But things look tough for the rest of America.
“You have a noticeable portion of consumers — mostly middle- and lower-income renters who have not benefited from the wealth effect of higher housing prices and stock prices — who are feeling financial stress and that’s driving these crime levels. Is increasing. “Inflation has hit them very hard,” Moody’s senior vice president Warren Kornfeld told the AP in an interview. Kornfeld, who co-authored a report last week looking at rising crime levels, called them Hopefully they continue to grow this year.
what to watch
The financial health of consumers could play a big role in the 2024 elections. President Joe Biden is working in part on his efforts to reduce costs for American families. Republicans counter that Biden is primarily to blame for the high costs. One way to measure this fragmentation of the American economy is to look at the results of some of the major credit card companies. Capital One, Discover Financial and Synchrony have historically had customers with lower credit scores, while American Express typically serves the most wealthy and affluent.
At Synchrony Bank, the largest issuer of retail co-brand credit cards, the charge-off rate jumped from 3.5% to 5.6% in a year. Meanwhile, about 4.7% of Synchrony customers are 30 days or more behind on their bills, which is more than a year ago.
Discover customers have $102 billion in balances on their credit cards, up 13% from a year ago. Meanwhile, charge-off rates and 30-day delinquency rates have climbed. Officials say they can see the impact of inflation.
“Think about the consumer who makes $50,000 a year,” John Green, Discover’s chief financial officer, said at an investor conference last week. “They’re spending $2,000 more on gas and food than they did a year ago. “It’s a worthwhile amount of money for that consumer.”
Bottom-line
Americans need to pay off their credit card debt as soon as possible, otherwise risk getting trapped in a vicious cycle of high interest rates, late fees, and low credit scores. This can have a serious impact on their future borrowing needs, such as mortgages, car loans, or student loans.
(with inputs from agencies)
why it matters
While the US economy is broadly healthy, Americans have been left with their savings and their credit card balances in their pockets after battling inflation for more than two years.
Experts worry that members of these groups — mostly low- and middle-income Americans who rent — are falling behind on their debts and could face a further deterioration in their financial health in the coming year, especially those People who recently resumed paying student loans.
big picture
Americans had more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and that figure is sure to rise after the Federal Deposit Insurance Corp. releases fourth-quarter figures next month.
A recent report from credit rating company Moody’s showed that credit card delinquency rates and charge-off rates, or the percentage of loans that banks believe will never be repaid, are now well above their 2019 levels. is up and is expected to continue rising.
These worrisome metrics coincide with an average interest rate on bank credit cards of nearly 21.5%, the highest since the Federal Reserve began tracking the data in 1994.
by numbers
Most analyzes of Americans’ financial health tell a tale of two consumers. On the one hand, there are about two-thirds of Americans who own homes and who have invested in the stock market and have done quite well. They generally had the savings needed to cope with high inflation. Crime rates among single-family homes remain at historic lows and home prices continue to rise.
But things look tough for the rest of America.
“You have a noticeable portion of consumers — mostly middle- and lower-income renters who have not benefited from the wealth effect of higher housing prices and stock prices — who are feeling financial stress and that’s driving these crime levels. Is increasing. “Inflation has hit them very hard,” Moody’s senior vice president Warren Kornfeld told the AP in an interview. Kornfeld, who co-authored a report last week looking at rising crime levels, called them Hopefully they continue to grow this year.
what to watch
The financial health of consumers could play a big role in the 2024 elections. President Joe Biden is working in part on his efforts to reduce costs for American families. Republicans counter that Biden is primarily to blame for the high costs. One way to measure this fragmentation of the American economy is to look at the results of some of the major credit card companies. Capital One, Discover Financial and Synchrony have historically had customers with lower credit scores, while American Express typically serves the most wealthy and affluent.
At Synchrony Bank, the largest issuer of retail co-brand credit cards, the charge-off rate jumped from 3.5% to 5.6% in a year. Meanwhile, about 4.7% of Synchrony customers are 30 days or more behind on their bills, which is more than a year ago.
Discover customers have $102 billion in balances on their credit cards, up 13% from a year ago. Meanwhile, charge-off rates and 30-day delinquency rates have climbed. Officials say they can see the impact of inflation.
“Think about the consumer who makes $50,000 a year,” John Green, Discover’s chief financial officer, said at an investor conference last week. “They’re spending $2,000 more on gas and food than they did a year ago. “It’s a worthwhile amount of money for that consumer.”
Bottom-line
Americans need to pay off their credit card debt as soon as possible, otherwise risk getting trapped in a vicious cycle of high interest rates, late fees, and low credit scores. This can have a serious impact on their future borrowing needs, such as mortgages, car loans, or student loans.
(with inputs from agencies)
