The economy and the job market are booming. However, many Americans are not paying their credit card bills. Perhaps inflation has been eating into their incomes. They may have charged too much on credit cards. Perhaps the high credit card interest rates have made having some cards unaffordable for many Americans.
According to The New York Federal Reserve, Americans had $986 billion in credit card debt at the end of the first quarter of this year. The percent of credit card payments that are seriously delinquent, which means over 90 days, has risen from 3.04% in the first quarter of last year to 4.57% in Q1 2023.
UBS analyst Erika Najarian, according to Reuters, said because of “worsening economic”, there will be, “credit deterioration throughout 2023 and 2024 with losses eventually surpassing pre-pandemic levels given an oncoming recession.” That assumes a recession is coming, which may not be the case.
Worrying about a recession can have an effect similar to a recession itself. The University of Michigan Consumer Sentiment Survey, posted a figure of 59.2 in May. While up slightly from recent months, it is well down from 85.5 in January 2021, when the economy was booming and before high inflation began to eat away at purchasing power.
Will the number get worse? As is the case with the economic situation of most businesses and individuals in the U.S., that depends on both interest rates and inflation. The Federal Reserve’s leaders say they must continue upping rates to fight inflation. That, in turn, makes the interest rates on most loans much higher. Daily life will become progressively more expensive if the Fed’s actions don’t work. Incidentally, high interest rates can increase unemployment as businesses suffer sharp jumps in expenses.
It is almost too complicated to figure out what will and won’t cause credit card delinquencies to go higher. What is certain is that the problem has become progressively more serious — and these are the states with the most credit card debt.
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