Americans saddled with credit card debt as prices remain high

NEW YORK

While the U.S. economy is broadly healthy, pockets of Americans have run through their savings and run up their credit card balances after battling inflation for more than two years.

Experts worry that members of these groups - mostly lower- and middle-income Americans, who tend to be renters - are falling behind on their debts and could face further deterioration of their financial health in the year ahead, particularly those who have recently resumed paying off student loans.

Americans held more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and a figure certain to grow once the fourth-quarter data is released next month.

A recent report from the credit rating company Moody’s showed that credit card delinquency rates and charge-off rates, or the percent of loans that a bank believes will never be repaid, are now well above their 2019 levels and are expected to keep climbing.

These worrisome metrics coincide with the average interest rate on a bank credit card of roughly 21.5 percent, the highest it’s been since the Federal Reserve started tracking the data in 1994.

Most analyses of Americans’ financial health tend to tell a tale of two consumers.

On one side are the roughly two-thirds of Americans who own their homes and those who’ve invested in the stock market and done substantially well. They generally had the savings cushion necessary to weather high inflation. Delinquency rates on single-family homes remain at near historic lows and home prices have continued to climb.

But for the rest of America, things are looking rough.

“You have these noticeable pockets of consumers -- mostly middle- and lower-income renters who have not benefitted from the wealth effect of higher housing prices and stock prices -- who are feeling financial stress and that’s driving up these delinquency levels. They’ve been hit very hard by inflation,” said Warren Kornfeld, a senior vice president at Moody’s.

Kornfeld expects them to keep climbing this year.

Inflation peaked at 9.1% in June 2022 and is now slightly above 3%. But the costs of many goods and services remains elevated. A loaf of bread that cost $1.54 in December 2020 cost $2.02 at the end of last year, and a gallon of gas has risen from an average of $2.17 to $3.29 in the same timeframe, according to the Bureau of Labor Statistics.

Renters in particular have felt the pinch. The median rent for a property with up to two bedrooms has jumped from $1,424 at the end of 2020 to $1,713 at the end of last year, according to realtor.com.