As household debt climbs and borrowing costs escalate, a growing number of consumers are grappling with the challenge of meeting debt obligations, with credit-card delinquency rates hitting their highest levels since 2012, as reported by the Federal Reserve Bank of New York.
The Federal Reserve’s efforts to curb inflation have led to increased borrowing expenses across various loan types, including credit cards, as the prices of everyday goods surge. This inflationary pressure is intensifying concerns among consumers regarding their debt repayment abilities.
According to a recent survey conducted by the New York Fed, individuals now perceive a more than 13% likelihood of missing a minimum debt payment in the upcoming three months, marking the highest monthly figure since April 2020.
Amid dwindling pandemic-era savings, more households are resorting to credit to meet essential expenses, according to economists at Wells Fargo. The uncertain job market and depleted savings are driving the consumer reliance on credit, shaping a pivotal aspect of their financial resilience.
A significant portion of the escalating credit card activity stems from subprime borrowers with lower credit scores, as highlighted by a TransUnion study. These borrowers are increasingly turning to credit cards to navigate the elevated price levels of goods and services.
In the second quarter, credit card balances surged by 8.6%, reaching a total of $1.05 trillion, as detailed in the TransUnion report. On average, each credit card borrower carried a debt of $6,329.
Paul Siegfried, senior vice president and credit card business leader at TransUnion, emphasized the mounting inflationary pressures faced by higher-risk prime and subprime segments, leading to heightened card utilization and growing balances. He anticipates a continued rise in delinquency rates, albeit at a decelerated pace in the foreseeable future.
