Rising Costs Push Americans Deeper into Credit Card Debt

Even if the US economy is doing well overall, some citizens have depleted their savings and accrued large credit card debt as a result of fighting inflation for more than two years.

Experts are concerned that people in these groups-mostly Americans with lower and middle incomes who typically rent-are falling behind on their payments and may see further worsening of their financial situation in the coming year, especially those who have recently started repaying their student loans.

In the third quarter of 2023, Americans had credit card balances of over $1.05 trillion, a record that is expected to rise when Federal Deposit Insurance Corp. releases the fourth-quarter figures the following month.
According to a new analysis by credit rating agency Moody's, charge-off rates-a measure of the percentage of loans that a bank feels will never be repaid-and credit card delinquency rates have risen significantly from 2019 levels and are predicted to continue rising.

These concerning indicators align with the average bank credit card interest rate of around 21.5%, which is the highest since the Federal Reserve began collecting statistics on the subject in 1994.

The majority of financial health evaluations of Americans typically depict two customers. The approximately two-thirds of Americans who own their houses and those who have made successful stock market investments are on one side of the divide.
In general, they possessed the safety net of savings needed to withstand rapid inflation. Single-family home delinquency rates are still very close to historic lows, and house values are still rising.

The financial well-being of consumers may be a significant factor in the 2024 election. One of the reasons President Joe Biden is running is his attempts to lower expenses for American households. Republicans respond by claiming that Biden is first to blame for the rising prices.

Rising Costs Squeeze Borrowers Across Income Levels

Examining the financial performance of a few significant credit card businesses is one approach to measure this division of the US economy.
Traditionally, lower credit score clients have been the target market for Capital One, Discover Financial, and Synchrony, whereas the richest and well-to-do customers are usually served by American Express.

The charge-off rate at Synchrony Bank, the biggest retailer of co-branded credit cards, increased from 3.5% to 5.6% in only one year. In the meanwhile, 4.7% of Synchrony users are at least 30 days overdue on their payments, a percentage that has increased from the previous year.

The $102 billion in credit card balances that Discover's customers are holding represent a 13% increase over the previous year. Concurrently, there has been an increase in the charge-off and 30-day delinquency rates. Executives claim to be able to observe the effects of inflation.

Particularly renters have felt the squeeze. According to realtor.com, the typical rent for a home with up to two bedrooms increased from $1,424 at the end of 2020 to $1,713 at the end of the previous year.

Although not as much as its rivals, American Express has also witnessed an increase in charge-offs and delinquencies over the past year. AmEx has always catered to consumers who pay off their credit cards at the end of each month and have better credit scores.
However, even AmEx users are increasingly more frequently carrying a balance. AmEx increased its net charge-off rate from 1.2% to 2% in the previous quarter.

JPMorgan Chase and Bank of America, two massive banks with significant client portfolios, are in the center of the range.
Due to the wide range of income levels and credit scores among the banks' clientele, their credit metrics have only slightly increased. However, because of their credit card portfolios, both banks have been putting extra money aside to cushion future loan losses.