Economic News
Credit Card Defaults in the U.S. Reach 14-Year High
A new report shows that credit card defaults are on the rise and reaching multi-year highs.
About the report:
As Financial Times reports (using BankRegData figures), through the first three quarters of 2024, defaults on U.S. credit card accounts reached $46 billion. That total is the highest seen in more than a decade. In fact, 2010 was the last time such highs were reached. Compared to the first nine months of 2023, delinquencies were up 50%. Looking back two years, defaults have more than doubled.
Although fourth-quarter results are yet to be determined, FT notes that other signs suggest more cardholders are falling behind. Last month, Capital One reported that its annualized credit card write-off rate (meaning the percentage of loans designated as unrecoverable) reached 6.1% — which was up nearly a full point year over year.
This increase in defaults could signal that a rising number of American consumers aren’t financially healthy. Likely culprits include inflation seen in recent years coupled with high interest rates. However, to that latter point, the Federal Reserve has steadily reduced interest rates throughout 2024.
What they’re saying:
Asked about the reported rise in delinquencies, Moody’s Analytics head Mark Zandi stated, “High-income households are fine, but the bottom third of U.S. consumers are tapped out. Their savings rate right now is zero.”
Meanwhile, WalletHub’s Odysseas Papadimitriou noted, “Consumer spending power has been diminished,” adding that, “Delinquencies are pointing to more pain ahead.”
My thoughts:
The sharp increase in default credit card accounts is certainly troubling — especially when you consider that this doesn’t even include the holiday shopping season. Unfortunately, as the analysts indicate, it seems as though this figure is going to get worse before it gets better. That said, falling interest rates may help to some degree as it could reduce the amount that consumers owe, hopefully allowing them to catch up.
Looking ahead, though, Financial Times and WalletHub’s Papadimitriou warn that incoming President Trump’s threat of tariffs could also impact consumers’ wallets. While it’s unclear exactly what tariffs the President will end up instating, broad tariffs on imported goods are likely to increase prices for several items. Notably, even if the completed items aren’t brought in from a tariffed country, parts used in domestic goods may still be imported.
Alas, this isn’t the news consumers or economists wanted just before the new year. But, hopefully, things can turn around, leading to a prosperous 2025 overall.
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