Credit Card Chaos: Delinquency Rates Soar to 2012 Levels, Says Fed Study

As Americans navigate the financial rollercoaster of 2024, more people find themselves behind on monthly credit card payments, overwhelmed by a trifecta of high inflation, soaring interest rates, and residual economic aches from the pandemic. According to new data from the Federal Reserve Bank of Philadelphia, credit card delinquency rates in the first quarter of 2024 have climbed to their highest levels since 2012, marking an unsettling trend that’s leaving many to wonder if we are on the brink of another financial crisis.

The Federal Reserve’s data indicates that delinquency rates across all stages—30, 60, and 90 days past due—have surged during the first three months of the year. Specifically, the proportion of card balances that were more than 60 days overdue by the end of March soared above 2.5%. This is a staggering increase, especially when compared to the lows seen during the COVID-19 pandemic, a period cushioned by hefty government stimulus checks that helped many Americans stay financially afloat.

While the number of total credit cards dipped in the first quarter—a typical seasonal trend—the total revolving balances skyrocketed to a record $628.6 billion. Revolved balances now account for 71% of total outstanding balances, the highest level since 2021. This spike in credit card usage and debt is particularly alarming given today’s astronomical interest rates. The average APR (annual percentage rate) for credit cards is holding steady at an eye-watering 20.71%, according to a Bankrate database with records dating back to 1985.

The surge in these delinquency rates comes on the heels of aggressive interest rate hikes by the Federal Reserve in 2022 and 2023. These hikes were intended to squash inflation and cool down an overheated economy, but they’ve also made borrowing significantly more expensive. The good news is that policymakers have hinted at cutting interest rates soon, as inflation continues to trend downward. However, with inflation still up by 3% compared to the same period last year, many U.S. households are grappling with increased costs for everyday necessities such as food and rent. This persistent inflation continues to put severe financial pressure on families already stretched thin.

Overall, the financial landscape is fraught with challenges that are making it difficult for many Americans to keep up with their credit card payments. The recent data from the Federal Reserve Bank of Philadelphia paints a stark picture of a nation struggling with the dual burdens of high inflation and soaring interest rates. While there may be some relief on the horizon with potential interest rate cuts, the current scenario underscores the need for vigilant financial management and perhaps a bit of belt-tightening for those looking to navigate these turbulent times. As we await further economic developments, one thing is clear: the road ahead will require both caution and resilience for American households.