The latest data shows that the default rate on credit card loans in the United States has reached the highest level since the 2008 financial crisis. In recent years, the high inflation rate has worsened the financial situation of low-income individuals.
According to the Financial Times, based on data from BankRegData, credit card institutions wrote off $46 billion in credit card bad debt in the first nine months of 2024, a 50% increase from the same period last year, reaching the highest level in fourteen years.
Write-offs are a key indicator of the pressure on repaying credit card debts. The significant increase in write-offs indicates that the debt pressure on low-income groups in the United States is growing.
Mark Zandi, Chief Economist at Moody’s Analytics, stated, “One-third of the bottom tier of U.S. consumers have run out of funds, and their current savings rate is zero.”
U.S. banks have yet to disclose their fourth-quarter earnings for this year, but early signs indicate that an increasing number of consumers are falling significantly behind on debt repayments.
Nearly $60 billion in credit card debt was written off in the past year, but there is still $37 billion in debt overdue by at least one month.
The credit card default rate is a precursor to write-offs. Moody’s data shows that the credit card delinquency rate peaked in July, and although it has slightly decreased since then, it remains nearly one percentage point higher than the average level before 2020.
The sharp rise in credit card defaults is evidently influenced by the high inflation rates in recent years.
During the lockdown period amid the pandemic, U.S. consumer savings levels rose significantly, prompting them to spend actively post-reopening.
Between 2022 and 2023, U.S. consumer credit card debt increased by $270 billion, leading to the total credit card debt of American consumers crossing the $1 trillion threshold for the first time.
However, as prices began to rise, the Federal Reserve started raising interest rates in 2022. The rate hikes directly increased the pressure on people to repay credit card debt.
Over the past 12 months from October of last year to September of this year, Americans who couldn’t fully pay their credit card bills paid a total of $170 billion in interest.
This further exacerbates the pressure on low-income individuals who struggle to repay their credit card debt.
Last week, although the Federal Reserve decided to cut interest rates by 0.25 percentage points, it hinted at a slower pace of rate cuts in 2025. The market currently anticipates that next year’s rate cut may only be 0.5 percentage points, compared to the previous expectation of one percentage point.
The slower rate of rate cuts means that people repaying credit card debt will face a longer and more painful debt repayment process.
(Reference: Financial Times)