In 2024, US credit card defaults surged by 50% compared to the previous year, reaching levels not seen since 2010, according to data from BankRegData analyzed by the Financial Times.
This alarming trend has raised fresh concerns about the financial health of American households.
The dramatic increase comes amid soaring consumer debt, which hit a record $1.17 trillion in the third quarter of 2024, as reported by the New York Federal Reserve.
Total household debt also reached an unprecedented $17.94 trillion, fueled by rising balances in mortgages, auto loans, and student loans.
BREAKING: US credit card defaults jumped to $46 billion in the first 9 months of 2024, the highest since 2010.
Credit card defaults are now up over 50% year-over-year.
Defaults of seriously delinquent credit card loan balances have more than doubled over the last 2 years.…
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‘The credit card debt bubble is popping’
Although banks have yet to release their fourth-quarter earnings, early indicators suggest a troubling rise in consumer defaults.
Capital One recently reported that its annualized credit card write-off rate—representing the portion of loans deemed unrecoverable—climbed to 6.1%, up from 5.2% the previous year.
“Consumer spending power has significantly weakened,” said Odysseas Papadimitriou, CEO of WalletHub, in an interview with the Financial Times.
Recent research from PYMNTS Intelligence highlights that 74.5% of consumers now carry some form of credit card debt.
While this figure remains consistent across income brackets, it spikes dramatically to over 90% among those living paycheck to paycheck and struggling to meet their financial obligations.
The study also found that paycheck-to-paycheck consumers with difficulty paying bills carry an average outstanding balance of $7,038, compared to $5,766 for those who are paycheck-to-paycheck but manage to cover their expenses.
For financially stable cardholders, the average balance drops significantly to $3,202.
Additionally, nearly 40% of struggling consumers reported regularly maxing out their credit limits, underlining the increasing strain on household finances.
Mark Zandi, chief economist at Moody’s Analytics, highlights a growing economic divide:
“High-income households are fine, but the bottom third of US consumers are tapped out. Their savings rate right now is zero.”
This disparity has left many Americans, particularly younger borrowers, struggling to keep up with payments.
Auto loans and credit card delinquencies have risen at a “notably elevated” rate, according to the New York Fed, reflecting the ongoing financial pressures.
A key driver behind these delinquencies is the combination of inflation and higher interest rates, which have pushed up monthly payments on credit cards and auto loans.
Many consumers are now finding themselves unable to manage these increased financial obligations.
“The credit card debt bubble is popping,” warned The Kobeissi Letter on X, signaling the broader implications for the economy.
Wealthier households remain relatively insulated
While experts agree that the credit card debt crisis is a significant concern, the impact is not evenly distributed.
Wealthier households remain relatively insulated, while lower-income groups bear the brunt of the financial strain.
Policymakers and financial institutions will need to address this growing disparity as Americans head into 2025 with mounting debt burdens.
Whether through regulatory reforms or targeted relief measures, the focus must shift toward ensuring financial stability for vulnerable households.
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