Younger Consumers Struggling to Pay Credit Card Debts

A recent report on first quarter household debt by the Federal Reserve Bank of New York found the share of credit card debt over 90 days past due rose to 10.7 percent in the first quarter, which is a 14-year high. Last year, severe delinquencies totaled 8.2 percent of credit card debt and total credit card debt was just under $1 trillion, while it now sits at $1.12 trillion. Young consumers, in particular—those in their 20s and 30s—are exhibiting the most difficulty paying their credit card bills.

“While these indicators do not necessarily predict a recession, especially with a robust labor market, a weakening in employment conditions could exacerbate household financial instability,” said Gregory Daco, EY chief economist, according to the Associated Press. “The combination of subdued job growth, sluggish income progression, and diminished savings could lead to increased delinquencies and a potential retrenchment in consumer spending.”

A Bank of America Global Research Report found that credit cards only make up about 6.5 percent of consumer debt, but the rise in delinquencies seems to be outpacing income growth. There are likely many consumers paying their minimum payments but if the economy worsens, it could push those consumers into delinquency. 

Borrowing has become more expensive on mortgages, auto loans, and credit cards as the Fed has raised its interest rate to a 23-year high in an effort to fight high inflation. Job and wage growth has helped counter consumer credit card struggles, but a slowdown or reversal could be a cause for concern.

“If our forecast of a benign moderation in the labor market is correct, we think consumer spending will remain resilient,” said Michael Gapen, Bank of America Global Research analyst. “However, elevated credit card delinquencies among lower-income consumers could increase the sensitivity of these consumers to an adverse labor market shock.”