Credit card delinquency is defined as being more than 90 days late on a payment. Using that definition, the news is not good for American consumers, with the rate of delinquency increasing to 7.5% as of June 2017.
The rate has been increasing for a few years now per the quarterly data from the New York Federal Reserve. In addition to that, the amount of money that consumers are in debt has increased by $24 billion to a total of $808 billion. That equates to an increase of about 3% quarter over quarter, which is a very high growth rate. That too is not good news.
Not only has the rate been of delinquency been increasing, but it has also been trending up for about 3 months now. In addition to the June 2017 New York Fed report, individual banks also report on this data too during their quarterly earning calls. Each and every one of them also show increasing rates of delinquencies. The rate reported by the major lenders is as follows.
- Chase JP Morgan increase of 1.22 percent.
- Discover had a 1.64 percent increase.
- Bank of America has a 1.56 percent increase.
Other major lenders showed similar results, with Citibank increasing its reserves/write off amounts by about 15%. So, combine these data points and it shows that the credit card debt amounts as well as timely payments of Americans is going in the wrong direction.
Impact to households
Increasing credit card debt, and delinquencies, is never a good thing. Now combine this with the fact that the federal reserve is raising short term interest rates, and the this can be a very bad combination. With borrowing becoming more expensive, the cost of credit card, as well as other debts such as auto loans, will only increase.
Most experts, as well as the federal reserve themselves, say that they will continue to increase short term interest rates throughout 2017 and into 2018. There may be as many as 3-4 more increases in short term rates by the end of 2018. This would increase the cost of credit card interest rates by about 1%, as those rates are directly tied to prime rates.
Credit card debt is short term in nature. This means that it is directly tied to what is known as the prime rate, which is set by the federal reserve. It is therefore not based on say long term interest rate, such as mortgages. With the increasing costs that households, including the 7.5% who are late, will be faced with on paying the interest on their debts, this will be bound to impact the number of delinquencies in 2017 and 2018. It is bound to increase.
If there is any good news, it is that being 90 days late is not the end of the world. Borrowers can still get help. The 7.5% of borrowers that are behind can still get help. There are a number of resources available to them, ranging from hardship programs offered directly by credit card companies to free counseling, budgeting services, and even consolidation loans.
Since we are getting close to the 2017 holiday shopping season, we also recommend that borrowers refrain from using their cards. Try to shop using cash. Do not go into debt just to buy someone a gift. As that can just cause more problems to your household finances.
Anyhow, with delinquencies now approaching 8%, and debt levels increasing, please be mindful if you are one of those borrowers. As if the economy all of a sudden changes, and slows, having excessive bills to pay when that occurs will not be a good thing for your family.