High inflation is fueling anxieties over credit card delinquency
Americans are increasingly anxious about missing their credit card payments as the cost of living crisis continues to strain household budgets.
According to the New York Fed’s latest Survey of Consumer Expectations, Americans expect inflation to hold steady at 3% over the next 12 months. Inflation is only expected to fall to 2.7% three years from now.
Both figures are considerably higher than the long-run inflation average.
The combination of rising prices and higher debt balances has more Americans worried about missing their minimum debt payments.
According to the New York Fed survey, the expected probability of missing a credit card payment over the next three months increased to 14.2%, up from 13.6% in August. It was the fourth consecutive monthly increase and the highest level since April 2020.
The probability of missing a payment spiked to 20% for consumers with an annual income of less than $50,000.
While the probability of missing a payment declines with higher earnings, all income groups were more anxious about falling into delinquency than they were a month earlier.
The data offer a stark reminder of the difficulties Americans face in an inflationary environment, where reliance on credit has never been higher.
Credit card debt: A collective headache
By the second quarter of this year, Americans had accumulated a record $1.14 trillion in credit card debt, a 30% increase from pre-pandemic levels.
The growing debt has become much harder to manage, with credit card interest rates soaring by 7 percentage points over the past two years.
As Creditnews recently reported, the average interest rate on credit cards rose to 23.4%, a new all-time high.
At this rate, Americans would collectively pay $266 billion in annual interest on their credit card balances—a figure that rises to $318 billion when factoring in all revolving credit loans.
It’s no wonder that nearly half of Americans in a recent Edelman Financial Engines survey said credit card debt is their biggest obstacle to wealth creation.
Credit card anxiety has many Americans “not feeling overly confident about the state of their finances,” said Edelman Financial Engines’ head of wealth planning, Amin Dabit.
There is strong reason to believe that consumers who are anxious about their credit card debt are more likely to fall into delinquency.
The Philadelphia Fed recently determined that “balance-based credit card delinquency rates” are at their highest levels since researchers started tracking the data 12 years ago.
In other words, actual delinquencies are rising as more consumers say they’re worried about missing payments.
Despite this trend, consumers show no signs of reducing their reliance on credit cards anytime soon.
A recent survey by Achieve found that 57% of Americans rely on credit cards to make ends meet. Half of those surveyed reported carrying a balance each month.
More than a third (36%) of respondents in the Achieve survey said they’re finding it difficult to make their payments on time.
More from Creditnews:
- Auto insurance rates spike despite easing inflation
- U.S. credit card interest rates hit a new all-time high
- Lower rates will only improve housing affordability for 3-6 months, experts say
- As cost of living crisis deepens, Democratic lawmakers go after ‘shrinkflation’
- Inflation will remain ‘sticky’ and ‘surprise the Fed again,’ BlackRock strategists warn
- 44% of Americans say credit card debt is biggest obstacle to wealth creation