Delinquencies on credit card debts are rising at the fastest pace since the Global Financial Crisis in 2007 that contributed to the Great Recession, according to a report from the Federal Reserve Bank of New York.
Delinquency transitions, meaning debts that were previously being paid but now are not despite outstanding obligations, increased in all categories except for student loans, with credit card and auto loan debt delinquency transitions rising to 8% and 7.4%, respectively, according to the New York Fed. The amount of outstanding debt on credit cards increased by 4.7% from the second to the third quarter of 2023, bringing it to $1.08 trillion, its highest point ever. (RELATED: Former Multibillion Dollar Start-Up Files For Bankruptcy)
“Credit card balances experienced a large jump in the third quarter, consistent with strong consumer spending and real GDP growth,” Donghoon Lee, economic research advisor at the New York Fed, said in a press release. “The continued rise in credit card delinquency rates is broad based across area income and region, but particularly pronounced among millennials and those with auto loans or student loans.”
And credit card (cc) problem stretches across age brackets; all groups seem to be relying on credit cards to make it from paycheck to paycheck, but even cc’s aren’t enough anymore; in aggregate, this is fastest rise in cc delinquency since the GFC – something’s going to break… pic.twitter.com/Cyeu91VAn5
— E.J. Antoni, Ph.D. (@RealEJAntoni) November 7, 2023
In total, the amount of debt that U.S. households held in the third quarter of 2023 as compared to the previous quarter increased by 1.3%, or $228 billion, to $17.29 trillion, rising about $3.1 trillion since the fourth quarter of 2019, according to the New York Fed. Mortgage debts, which make up the majority of the total debt held by Americans, increased by $126 billion during the same time frame.
Student loan debt increased by $30 billion to $1.6 trillion for the third quarter of 2023, according to the New York Fed. Less than 1% of student debt was reported as delinquent for 90+ days, as missed payments in this category will not be reported to credit bureaus until the fourth quarter of 2024 following the student loan moratorium.
The increase in credit card debt and delinquencies accompanies substantial consumer spending in the third quarter of 2023, which fueled above-trend Gross Domestic Product growth. The economy grew at a rate of 4.9% in the third quarter year-over-year.
Interest rates on all forms of debt are facing upward pressure from the Federal Reserve’s elevated federal funds rate, making the increasing amounts of debt Americans hold even more costly. The federal funds rate has been set in a range of 5.25% and 5.50% after a series of 11 hikes that began in March 2022 in an effort to tame inflation.
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