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Americans increasingly turned to their credit cards to make ends meet

August 10, 2023: On Thursday, Americans increasingly turned to their credit cards to make ends meet heading into the summer, shipping aggregate proportions over $1 trillion for the first time, the New York Federal Reserve reported.

Total credit card indebtedness rose by $45 billion in the April-through-June period, an increase of more than 4%. That took the total amount owed to $1.03 trillion, the highest gross value in Fed data from 2003.

The increase in the category was the most notable area as total household debt increased by about $16 billion to $17.06 trillion, also a fresh record.

“Household budgets have benefitted from excess savings and pandemic-related debt forbearances over the past three years, but the remnants of those benefits exist ending,” said Elizabeth Renter, data analyst at personal finance site NerdWallet. “Credit card delinquencies continue an upward trend, a growing sign that consumers are feeling the pinch of high prices and lower savings balances than they had just a few years ago.”

As card use grew, so did the delinquency rate.

The Fed’s measure of credit card debt 30 or more days late climbed to 7.2% in the second quarter, up from 6.5% in Q1 and the highest rate since the foremost quarter of 2012 though close to the long-run normal, central bank officials said. Total debt delinquency edged higher to 3.18% from 3%.

“Credit card credits saw brisk growth in the second quarter,” said Joelle Scally, regional economic principal within the Household and Public Policy Research Division at the New York Fed. “While delinquency rates have edged up, they appear to have normalized to pre-pandemic levels.”

Fed researchers say the balance rise reflects inflationary pressures and higher consumption levels.

According to the inflation issue, household income adjusted for inflation and taxes is running some 9.1% below what it was in April 2020, putting additional pressure on customers, according to SMB Nikko Securities.

“This is an issue because the sustainability of consumers’ pandemic debt-binge was partially predicated upon their incomes steadily rising,” Troy Ludtka, senior U.S. economist at SMBC Nikko, said in a client note. “Instead, the contrary occurred, and now the rate at which borrowers are running late on their debt payments is back to pre-Covid levels. This could be the most recent challenge facing embattled commercial banks.”

The central bank also stated demand for card issuance has eased, which has come in conjunction with banks saying that credit standards are tightening.

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