According to data from the Federal Reserve Bank of New York, credit card delinquencies reached 8.5% in the fourth quarter of 2023 – that’s up from 5.87% in 2022, and 4.1% in 2021. Within a span of two years, credit card delinquencies have more than doubled.
We’re hearing again and again from the current administration the US economy is healthy – yet so many Americans are relying on credit cards, carrying expensive debt that they are ultimately unable to pay back. The total amount of credit card debt in the US has surpassed $1.13 trillion, which on its own is troubling, but the state of delinquencies shows the true financial ruin we’re seeing unfold across the country. On this episode of Investing in Real Estate, we’re going to discuss the implications of this mounting consumer debt.
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Delinquencies especially can have a harmful impact on the lives of Americans. A delinquency on your credit report will obviously impact your ability to obtain future loans. The implications can range from being denied a place to live, to needing a co-signer to get a loan, and oftentimes paying higher prices for everything. And this type of negative ding on your credit report will follow you around for seven years!
There are a lot of factors at play when it comes down to these glaring problems with credit card debt. Many economists point to interest rates, inflation, and an increased cost of living. We also know that many consumers are relying on credit cards to supplement their income, and a large portion of the population is simply overspending.
And all of those factors are certainly part of the equation. It’s truly the perfect storm. We know that inflation is hurting American’s wallets and the cost of nearly everything surged during the pandemic—and hasn’t come back down.
Aside from those major contributing factors, there’s something that’s widely overlooked. A lot of the problems we’re seeing in this country surrounding debt are caused in part by a widespread lack of financial education. Most Americans don’t understand how a credit card’s APR works. They don’t understand how minimum payments and interest rates work in tandem to keep you in the debt trap. A 2023 survey by Clever found that 28% of card users don’t even know what their credit card’s interest rate is.
And financial education is the only cure. We have no control over interest rates, inflation, and the price of goods. The only thing borrowers can do is empower themselves and become armed with the information that will allow them to get out of this vicious cycle of mounting credit card debt.
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