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Credit Card Delinquency Rates Escalating to above Pre-Pandemic Levels

Contributed By: PSCU 

The start of 2024 has shown continued positive consumer spending trends, but there is a growing reliance on credit cards to finance this spending.

Credit card debt continues to rise, as many consumers who have been grappling with inflation have likely depleted their savings and accrued higher credit card balances, just as credit card interest rates have reached historic highs. The New York Federal Reserve published that Q4 2023 consumer credit card debt was $1.129 trillion, up 14.5% (or $143 billion) year over year.

The Consumer Confidence Index rose in January to 114.8 from a revised December result of 108.0. All age groups showed gains, with the largest gain in the 55+ group. Similarly, the University of Michigan Consumer Sentiment Index increased 13.3% in January, the largest month-over-month increase since July 2021. Despite consumers citing easing inflation and improvement in personal incomes, only 41% of consumers had a favorable view of business conditions in the coming year and 48% expect worsening conditions.

Key Takeaways

The February 2024 edition of the PSCU Payments Index presented a Deep Dive exploring escalating credit card delinquency rates, which are well above pre-pandemic levels. Key takeaways include:

  • Debit purchase growth, up 3.4% for January, again continued to outpace growth in credit purchases, up 1.1%. For transactions, debit grew 2.4% and credit grew 2.3% year over year. Credit and debit purchase growth was largely driven by the Service sector, which contributed 1.5% of growth for each. The greatest impact on credit and debit transaction growth came from the Goods sector, accounting for 0.7% for credit and 0.9% for debit.
  • Delinquencies have been on the rise and are exceeding pre-pandemic 2019 levels. Delinquency rates bottomed out in May 2021 at 1.03% due to three economic stimulus packages which resulted in government monies provided to consumers. Since that point, the monthly delinquency rate and average credit card balance has been on the rise, aside from slight drops each spring due to income tax returns. Overall credit card delinquencies for January 2024 were 2.67%. We also see that delinquency rates lower as age demographics get higher. For year-over-year changes, there were notable increases for Older Millennials, up 0.77 percentage points to 3.86% for January 2024, and Gen X, up 0.63 percentage points to 2.55%. Gen Z has the highest overall delinquency rate.
  • The Consumer Price Index (CPI-U) increased 0.3% in January, while the 12-month rate of inflation was 3.1%. Shelter contributed to over two-thirds of the increase. Excluding the volatile Energy and Food sectors, the core CPI index increased 0.4% from December, putting the 12-month Core CPI index at 3.9%.
  • Through the lenses of Discretionary and Non-Discretionary purchases, growth in debit purchases, up 2.6% and 3.5% respectively, outpaced growth in credit purchases, each up 1.1%. 
  • The average credit card balance dropped in January, finishing at $2,915. This was down $34, or 1.2%, compared to December 2023. Year over year, average credit card balances were up 4.0%, or $111. Total credit card balances were down 1.1% compared to December.

Looking Ahead

Strength in the January job market and wage growth helped consumers limit rising delinquencies as they manage increased debt obligations. However, an uptick in large layoff announcements in early 2024 is leading to concern regarding how consumers will manage debt loads in the face of potential layoffs. These factors are also compounded by federal student loan payments resuming. It is imperative for credit unions to understand the complete financial profile of their members, as well as taking proactive measures to identify areas of risk and opportunity.

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