Credit cards are a big part of American culture, and now it seems that credit card delinquencies have also joined the list. It was reported that Americans collectively owe $1.12 trillion on their credit cards, according to a report on household debt from the Federal Reserve Bank of New York.
Rise in Credit Card Delinquencies
Credit card balances decreased by $14 billion, which is the usual trend after the busy holiday season. However, the rates of credit card delinquencies have increased, particularly among young adults aged 18 to 29. As per the New York Fed’s findings, these borrowers often face high student loan debt and overall high costs, making it too hard to keep up with payments.
Researchers found that Gen Z has shorter credit histories and lower credit limits than other age groups. These factors could cause them to max out their credit cards and miss payments.
During a press call on Tuesday, the New York Fed researchers said that while credit card companies’ overall balance sheets are strong, certain segments of the population have experienced increased stress. They noted that over the past year, about 8.9% of credit card delinquencies have occurred.
Gen Z Committing High Credit Card Delinquencies
A January Bankrate report suggested that many Americans are feeling the pressure of rising prices on items like food, gas, and housing. According to Ted Rossman, Bankrate’s senior industry analyst, this, along with high inflation and interest rates, is making it harder for people to pay off their debts.
Recent reports show that young adults, or Gen Z, face extra financial difficulties. When adjusted for inflation, their wages are lower than what their parents earned at the same age. Additionally, they have high student loan debts.
Younger borrowers may also struggle with larger monthly payments if they have made significant purchases like cars in recent years. This is due to higher prices and increasing interest rates.
Credit card rates, already high in recent years, have increased further due to the Federal Reserve’s 11 rate hikes since 2022, including four last year. Since most credit cards have variable rates, they are usually directly tied to the Fed’s benchmark. As the federal funds rate increased, so did the prime rate, raising credit card rates.
The average annual percentage rate is now over 20%. This is close to an all-time high, according to Bankrate. On credit card delinquencies by Gen Z, Rossman said that while the Fed is expected to maintain higher rates for some time, credit card rates are still likely to remain high. He added that the national average could go over 20% for the second time ever by the end of the year.
Matt Schulz, chief credit analyst at LendingTree on credit card delinquencies by Gen Z, said that if anyone has good credit, they still have options available even with interest rates expected to remain high.
You could try negotiating a lower rate with your credit card issuer if you have a balance. You could also consider consolidating your debt by paying off high-interest credit cards with a lower-interest home equity loan or personal loan or transferring your balance to an interest-free credit card.
Mike Townsend, a spokesperson for the American Bankers Association on credit card delinquencies among Gen Z, said that to get the most out of their credit cards, consumers should regularly pay off their balances and avoid late payments while comparing different credit card options.
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