Credit card write offs are increasing

Now that all four of the major banks have reported their earnings, there are some warning signs flashing when it comes to consumer credit card debt. Not only is the amount of money that Americans owe at a record high ($1.022 trillion per the Federal Reserve) but the major lenders are starting to write off more of those balances as they are not being paid back to the bank.

This is concerning as it in effect means that borrowers are falling behind on their monthly payments and not repaying their debts. The amount of money that the big 4 lenders (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) wrote off exceeded $12.5 billion dollars in 2017, which is about a 15% increase from the previous year. About 3.2 billion dollars of that was written off in Q4 of 2017, which is a 16% increase from Q4 of 2016.

As noted, the amount of debt going unpaid took a major jump year over year. Now with consumer credit card and other resolving debt balances at record high and the Federal Reserve also increasing short term interest rates, those two factors may make it more difficult for people with a credit card balance or short term debt consolidation loan. It could very well have a larger impact on the economy as well.

Not only is the amount of outstanding resolving debt increasing, but there are also even more accounts being open. Even though the adult population (people over the age of 18) in the United States is just above 250 million, there are over 450 million open credit card accounts in the US according to the Mercator Advisory Group. That means that on average each adult has almost 2 credit cards to their name. The 450 million + accounts open is also equivalent to about a 30% increase since 2010, meaning many more people have access to credit.

What is going on with these write offs?

With the strong economy and job market, you may wonder why are their more people not paying their credit card bills? Well unfortunately there is no one answer, and no one knows the exact reason. But experts say that one or more of the following may be the likely cause.

The first reason is that most (majority of?) people live above and beyond their means. This is usually the number one reason that a family falls behind on their bills. They spend as much (if not more money) then they make, and no matter how much they earn they spend that and even more on say credit cards. And then, as soon as one challenge comes up (such as reduction I work hours, stock market going down, car repair, etc.) they can no longer keep up and fall behind on their bills, loans, and other debts.

We at needhelppayingbills strongly believe that is the number one reason for maybe a majority of financial hardships, living above your means. There is also the lifestyle of people wanting to “keep up with the Joneses”…whoever they are! Even with the strong economy (which gives people the ability to save more) the Census Bureau even reports that the US Savings rate is at a 12 year low.

Overspending and living beyond one’s means is one cause, and in our opinion the biggest of a financial hardship. But there could be many other reasons why credit card write offs are increasing at double digit rates. Another can be that the lenders are now pushing products to lower income and/or less credit worthy borrowers. With the number of cards now exceeding 450 million (and the rapid growth in accounts since 2010) the banks are pushing accounts to a wider audience. This is exactly what was done in the early to mid-2000s which helped cause some major hic-ups in the economy.

The federal reserve is also raising short term rates, with more increases expected in 2018. Each hike will increase the monthly payments on any resolving debt, such as credit cards, home equity loans, and more. This puts further strain on anyone who has a balance on their account and causes more people to fall behind…thus higher write off amounts.

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