The year 2023 has brought concerning news for Americans as an increasing number of individuals have been falling behind on their credit card payments. As a result, experts predict that delinquency trends in 2024 could potentially worsen before showing any signs of improvement.
One of the primary contributors to this issue is the soaring credit card balances, surpassing $1 trillion for the first time. Rising prices and interest rates have made it significantly more expensive to carry balances on credit cards, exacerbating the problem further.
Furthermore, the share of credit card debt falling behind for the first time has seen a notable increase in the third quarter, rising to 8% from the previous 6.5% in the first quarter of 2023. This level of delinquency hasn't been observed in over a decade, as per household debt statistics from the Federal Reserve Bank of New York.
Amid concerns about the strength of consumers and their sentiment in the market, Goldman Sachs estimates indicate that credit card delinquencies will continue to rise in the coming year. According to their analysis, the rate of new credit card delinquencies is expected to climb to 9.5% by the first half of 2024 before gradually easing to around 9% by the end of the year. It is worth noting that low-income cardholders will be particularly affected by this trend.
To put this into perspective, the last time early-stage credit card delinquencies surpassed 9% was in the first quarter of 2011, according to data from the New York Fed.
In conclusion, the challenging situation with credit card delinquencies shows no immediate signs of improvement. It is crucial for individuals and policymakers alike to be aware of these trends and take proactive measures to address them effectively.
The Rise in Delinquencies: A Closer Look
The weight of high credit card interest rates and restarted federal student loan payments will contribute to the ongoing rise, as indicated by Goldman Sachs researchers. However, there is hope for a slight pullback in delinquencies in the second half of the year, thanks to interest rate decreases and income growth.
Restarted student loan bills have had a significant impact on households in lower income brackets, resulting in an average 7% reduction in their income. This financial strain may have caused some borrowers to miss their credit card payments.
Interestingly, a YouGov poll on resolutions for 2024 revealed that a significant percentage (44%) of respondents expressed their desire to save money, reduce spending, and pay off debts. This personal finance resolution ranked third, following goals of eating healthier and losing weight.
Unfortunately, the delinquency drumbeat resonates beyond credit cards. Data highlights an increase in the number of people missing mortgage payments. In November, the default rates on past-due Federal Housing Administration loans reached a nine-year high.
Although overall mortgage delinquency rates remain below pre-pandemic levels, this upward trend is worth monitoring, according to experts.
Together, these factors paint a concerning picture of the current financial landscape. But with careful attention and proactive measures, individuals and households can overcome these challenges and regain financial stability.