Debt Crisis : The situation is becoming increasingly alarming as delinquency rates continue to climb for six consecutive quarters, tracking a trajectory not seen since the infamous 2008 financial debt crisis in Credit cards. As prices of basic necessities surge, many Americans are resorting to borrowing through credit cards to offset the mounting costs.
The reliance on credit cards as a means to cope with inflationary pressures is evident as total credit card debt is on the verge of crossing the unprecedented milestone of $1 trillion. Since the fourth quarter of 2020, credit card debt has surged by over $200 billion, with a record-breaking $986 billion currently owed by Americans.
Disturbingly, the average credit card interest rate now stands at 24.2%, with some cases reaching a staggering 27.7%. There are concerns that the first-ever credit card debt rate of 30% or higher could become a reality in the coming months. As the Federal Reserve raises interest rates, carrying a credit card balance has become increasingly expensive, pushing borrowers further into debt.
The burden of credit card loans varies across different states, with many states approaching or even surpassing an average credit card debt balance of $10,000. In New York, the average balance hovers around $9,200, while 27 states now face an average debt balance of $7,000 or more.
A survey conducted in late-2022 revealed a distressing revelation – more Americans are carrying a balance than not. A staggering 56% of respondents admitted to carrying a credit card balance at some point in the third quarter of 2022.
The credit card crisis is further exacerbated by the recent rise in delinquency rates, which have climbed to nearly 3%. This comes after a period of declining delinquencies during the pandemic when stimulus packages were disbursed to support struggling households. However, the current trend shows an unsettling opposite, with delinquency rates on a relentless upward trajectory, tying the longest streak since 2008.
Debt Crisis For The Americans
For many Americans, the burden of the credit card crisis is an entirely new experience, as interest rates reach a record 25%. The heavy reliance on borrowing and the escalating costs of servicing debt have raised concerns about the long-term implications on personal finances and the overall economy.
Now the nation grapples with this credit card debt crisis, policymakers, financial institutions, and individuals need to explore sustainable solutions to address the rising debt levels. The focus should be on financial literacy, responsible borrowing, and creating safety nets to cushion the impact of economic downturns.