US Markets
Tuesday, February 6th, 2024 6:18 pm EDT
Key Points
- Surge in credit card delinquencies: Credit card delinquencies increased by over 50% in 2023, with debt transitioning into “serious delinquency” rising notably, reaching 6.4% in the fourth quarter, a significant jump from just over 4% in 2022.
- Rising delinquencies across multiple categories: Delinquencies also increased in mortgages, auto loans, and other categories, signaling heightened financial stress, particularly among younger and lower-income households.
- Impact of interest rate hikes: Higher interest rates, resulting from a Federal Reserve tightening cycle, have affected borrowers, with credit card interest rates leaping from about 14.5% to 21.5%. This increase has likely contributed to rising delinquency rates, alongside factors such as stagnant incomes and elevated debt levels.
The New York Federal Reserve’s report highlighted a significant surge in credit card delinquencies by over 50% in 2023, amidst a backdrop of consumer debt reaching a staggering $17.5 trillion. Particularly striking was the escalation of credit card debt transitioning into “serious delinquency,” defined as 90 days or more past due, which soared to 6.4% in the fourth quarter, a substantial 59% increase from the prior year. This trend was mirrored in other categories such as mortgages and auto loans, while student loan delinquencies experienced a slight decrease. Despite these concerning figures, total debt growth has been relatively steady, reminiscent of pre-pandemic levels. The rise in delinquency rates is attributed to increased financial strain, notably among younger and lower-income households, exacerbated by the Federal Reserve’s interest rate hikes, which saw credit card interest rates jumping from approximately 14.5% to 21.5%. This tightening cycle has impacted various consumer debt products, contributing to the financial stress faced by borrowers. However, amidst these challenges, student loan debt remained relatively stable, with President Biden’s initiatives to forgive significant portions of student loan debt providing some relief. Nonetheless, mortgage debt saw an uptick in both total debt and delinquency rates, reflecting ongoing economic uncertainties.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/02/06/credit-card-delinquencies-surged-in-2023-indicating-financial-stress-new-york-fed-says.html
