A new report from the Federal Reserve Bank of New York highlights rising household debt, revealing that credit card balances increased by $27 billion in the second quarter of 2024, a 5.8% rise from the previous year.
The report also noted a spike in credit card delinquencies, particularly among younger adults between the ages of 18 to 29 and 30 to 39, who were likely more severely impacted by the Covid-19 pandemic.
These borrowers may have overextended themselves financially during the pandemic, according to New York Fed researchers. Delinquent borrowers tend to be renters with shorter credit histories and lower credit limits, making them more susceptible to financial hardship and missed payments. Over the past year, about 9.1% of credit card balances became delinquent, the report said.
Brett House, an economics professor at Columbia Business School, noted that homeownership has been a key driver of wealth in recent years, and those who have been priced out of the housing market have struggled to attain similar financial security. Many millennials who are now falling behind on credit card payments may have entered the labor market during the Great Recession, which could be contributing to long-term negative effects on their financial stability.
A separate survey by Achieve found that 57% of consumers currently rely on credit cards to make ends meet, and 36% struggle to pay their recurring debts on time. Half of cardholders are now carrying a balance from month to month, according to another report from Bankrate.
Ted Rossman, a senior industry analyst at Bankrate, emphasized that the combination of high inflation and rising interest rates has drained Americans’ savings and left more people carrying debt for longer periods. Credit card rates, which are now above 20%, have become one of the most expensive ways to borrow money, particularly for lower-income households struggling with price increases.
With the average credit card balance sitting at $6,218, a 20% annual interest rate would result in 18 years of minimum payments and cost over $9,300 in interest, Rossman said. He stressed the importance of paying down credit card debt as soon as possible, given the current high-interest environment.
