US credit card defaults at highest level since Great RecessionCredit card defaults in the US reached their highest level since the 2008 financial crash during the first nine months of 2024, according to figures compiled by BankRegData and cited in a recent Financial Times article. Credit card lenders were also forced to write off $46 billion in seriously delinquent debt balances through September 2024, up 50 percent from the same period the year before, and the highest level in 14 years.
These figures reveal widespread social distress and economic insecurity in America’s supposedly booming economy. With rising expenses and stagnant wages, tens of millions of workers and lower middle class people have been forced to rely on their credit cards to pay for food, gas, medicine, clothing and other living costs. Hit by elevated interest rates, they have not been able to make their credit card payments.
“High-income households are fine, but the bottom third of US consumers are tapped out,” said Mark Zandi, the head of Moody’s Analytics, told the Financial Times. “Their savings rate right now is zero.”
After government stimulus checks allowed borrowers to pay down their credit card debts in 2020 and 2021, credit card debt has risen by a combined $270 billion in 2022 and 2023, according to the Federal Reserve Bank of New York. It surpassed the $1 trillion mark in mid-2023 and reached $1.66 trillion in the third quarter of 2024. The average American household credit card debt was $10,757 in the third quarter, according to personal finance web site Wallet Hub.
“Nearly half of Americans still have debt from the holidays from last year,” said WalletHub writer and analyst Chip Lupo, adding that a third of respondents to his organization’s survey reported they would spend less this year on holiday shopping.
Unable to pay off their balances in full, borrowers sent the credit card companies $170 billion in interest payments in 2024. As of last Friday, the average credit card interest rate was 20.35 percent, according to Bankrate.
These loan shark rates have allowed the biggest credit card lenders—Visa, Mastercard and Capital One—to reap record profits. Visa, the largest, booked $19.7 billion in 2024 profits (up 16 percent from FY 2023) and enjoyed a 55 percent profit margin (up from 52 percent in FY 2023); 2024 revenues shot up 10 percent to $35.9 billion.
But financial pressure on credit card holders has led to a spike in defaults and delinquencies. The percentage of overall loans that have been marked as unrecoverable has now hit 6.1 percent, from 5.2 percent a year ago, according to Capital One, the US’s third largest credit card lender. Credit card delinquency rates, considered one step from loans that must be written off, peaked in July, according to data from Moody’s. Rates remain higher than pre-pandemic levels with $37 billion in balances at least one month overdue.
All forms of household debt are reaching the breaking point. The Federal Reserve Bank of New York’s survey of household debt and credit released last month showed that aggregate balances increased by $147 billion in the third quarter of 2024, a 0.8 percent rise from 2024Q2. Balances now stand at $17.94 trillion and have increased by $3.8 trillion since the end of 2019, just before the pandemic recession.
A breakdown of these debts include:
Mortgage balances grew by $75 billion during the third quarter of 2024 and totaled $12.59 trillion at the end of September. Balances on home equity lines of credit (HELOC) rose by $7 billion, the tenth consecutive quarterly increase after 2022Q1, and there is now $387 billion in aggregate outstanding balances.Auto loan balances rose by $18 billion, and now stand at $1.64 trillion. Student loan balances grew by $21 billion, and now stand at $1.61 trillion.Other balances, which include retail cards and other consumer loans, remained effectively flat, with a $2 billion increase.read more:
https://www.wsws.org/en/articles/2024/12/31/yhjz-d31.html