US credit card defaults have reportedly surged to $46 billion in the first 9 months of 2024, which is said to be the highest since 2010.
Credit card defaults are now up more than 50% year-over-year.
And defaults of seriously delinquent credit card loan balances have more than doubled during the past 2 years.
Notably, the bottom-income consumers were hit the hardest “due to years of elevated inflation and interest rates.” In addition to this, the savings rate of the bottom third is now 0%, according to the latest update from Moody’s.
Odysseas Papadimitriou, head of consumer credit research firm WalletHub, told the FT that delinquencies are now “pointing to more pain ahead,” adding that the incoming Trump administration’s proposed tariffs might potentially strain consumers even further by increasing inflation as well as interest rates.
Last month, the US Federal Reserve had slashed interest rates for the third time in 2024, however, it also signaled fewer cuts in 2025 (attributing it to the overall result of persistent inflation).
Fed chair Jerome Powell had stated on December 18:
“The slower pace of cuts for next year really reflects both the higher inflation readings we’ve had this year and the expectation inflation will be higher.”
It’s worth noting that US consumers have been relying on credit cards this holiday shopping season.
A report from LendingTree revealed that as many as 36% of consumers took on debt this year, with 42% now saying that they are regretting spending as much as they have, and 21% expecting it may take five or more months to pay it all off.
These borrowers are said to be quite evenly represented by all income brackets, including those making less than $100,000 a year as well as more than $100,000.
The Credit Access Survey by the Federal Reserve Bank of New York revealed growing rejection rates for credit cards, mortgages, auto loans, credit card limit extension applications and mortgage loan refinance applications.
Notably, the average rejection rate for mortgage refinance applications has now more than doubled in October 2024 at 22% (compared to 9.5% a year prior).
Although this might lead to financial stress for households, it does not always lead to systemic risk, according to economists and financial professionals.
Scott Fulford and Christa Gibbs shared as part of their August 2024 report for the Consumer Financial Protection Bureau:
“Rather than being a sign of broader distress, this increase in delinquencies is explained by a substantial increase in the riskiness of recently issued credit cards.”
