The Blubber

More Americans are falling behind on their credit card payments.

About 8.9% of credit card balances became delinquent over the past year, according to the Federal Reserve Bank of New York. This indicates that a growing number of borrowers are struggling with rising prices and high interest rates.

"Everything is more expensive. Debt is more expensive. Rent is more expensive. Food, gas, everything," says Charlie Wise, senior vice president at TransUnion, a credit reporting firm. "Even with the relatively healthy wage gains we've seen over the last several years, many consumers just aren't keeping up with the price pressures."

Maxed-out borrowers are a significant concern
The New York Fed's report shows that the financial strain is not evenly distributed. While many households are on solid financial footing, nearly 1 in 5 cardholders is "maxed out," using at least 90% of their credit card limit. This is worrisome, the report says, because maxed-out borrowers are much more likely to fall behind on their bills.

People under 30 and those living in low-income neighborhoods are particularly likely to be maxed out, according to the report. Among Generation Z borrowers, about 1 in 6 is close to exhausting their credit, compared with 4.8% of baby boomers.

Trapped in an expensive debt cycle
Overall credit card balances totaled $1.115 trillion in the first quarter of the year, $129 billion more than last year. For card users who pay their balance in full every month, this isn't a problem. However, according to Bankrate, roughly 44% of borrowers carry credit card debt month to month.

"The credit card market is really one of these proverbial tales of two cities," says Ted Rossman, senior industry analyst at Bankrate. "You have roughly half of cardholders paying in full and getting great benefits like rewards and buyer protections. And then you have the other half, more or less, who can easily become trapped in an expensive debt cycle."

Credit card debt is very costly, with the average interest rate exceeding 20%. Rossman says borrowers who make only the minimum monthly payment can take nearly two decades to pay down their debt. On an average balance of $6,360, the interest alone would total $9,500.

"Time is not your friend if you're a consumer struggling with debt," says Mike Croxson, CEO of the National Foundation for Credit Counseling. "As you go through paying minimums, missing minimum payments, and other things, those rates are going to continue to increase."

Credit card delinquency rates are rising
Early in the COVID-19 pandemic, when spending opportunities were limited and the federal government was sending out relief payments, many people paid down their debts, leading to historically low credit card delinquencies.

That trend has now reversed. Credit card delinquencies have returned to pre-pandemic levels, despite rising wages and low unemployment.

The rising rates of delinquency, even with a strong labor market and economy, are raising concerns at the New York Fed. It's a troubling trend they will continue to monitor in the coming months.