More credit card users just make the minimum payment each month
of ConsumerAffairsTheres growing evidence that Americans are struggling with their credit card debt, which has grown significantly since the COVID-19 pandemic. A new report from the Federal Reserve Bank of Philadelphia found credit-card balances in the third quarter rose to their highest levels since 2012. The report showed more consumers are making just the minimum amount each month.
During the pandemic, consumers made significant progress in paying down credit card balances. However, as inflation accelerated, many consumers used credit cards to keep their heads above water.
Credit card performance is showing signs of consumer stress, the reports authors wrote. The share of active credit card accounts making just the minimum payment hit a 12-year high. The share of revolving card balances to total card balances is continuing its rise since the end of the pandemic. The share of delinquent balances continues to worsen year over year after surpassing pre-pandemic levels in third quarter 2023.
Mark Damsgaard, vice president of marketing at Vancis Capital, says inflation may have cooled since its peak in 2022, but its lingering effects have left many households stretched thin, particularly when it comes to essentials like groceries, utilities, and housing.
More reliant on credit
Also, many lower- and middle-income households arent able to keep up with the rising costs of living, so theyre more reliant on credit, Damsgaard told ConsumerAffairs. And with layoffs in key industries and a potential recession, income has been unstable, so its harder to stay current on payments.
Utility costs alone have emerged as a major burden for households. A December report from doxo showed the average U.S. household now spends $362 per month, marking a 3% increase from the previous year. This analysis, part of doxoINSIGHTS' U.S. Utilities Market Size and Household Spend Report for 2024, found that Americans collectively spend $451 billion a year on utilities, underscoring the growing financial burden on households across the nation.
In response to weaker credit performance, the Fed said banks are adopting more conservative lending standards. It said tighter bank underwriting is resulting in a measurable decline in new card origination commitments and higher origination credit quality with new account-holders possessing higher credit scores.
Photo Credit: Consumer Affairs News Department Images
Posted: 2025-01-27 11:59:24
