Persistent inflation is taking a toll on consumers, with defaults on U.S. credit card loans reaching their highest level since the 2008 financial crisis, according to industry data compiled by BankRegData and cited by Financial Times.
In the first nine months of the year, credit card lenders wrote off a whopping $46 billion in delinquent loan balances. That’s a 50% increase from the year before and the highest level in over a decade.
Total credit card debt was over $5.1 trillion in October, while Americans paid $170 billion in interest payments over the last year, Federal Reserve data shows.
While inflation has cooled since its peak in June 2022, it has remained above the Fed's goal of 2%. And it’s likely to stay that way, with Wells Fargo economists estimating the inflation rate to fall between 2.5% and 2.6% next year.
This means the lower third of U.S. consumers can expect more financial pressure in 2025.
Odysseas Papadimitriou, head of consumer credit research firm WalletHub, told Financial Times that delinquencies “are pointing to more pain ahead,” noting that the incoming Trump administration’s proposed tariffs could strain consumers by increasing inflation and interest rates.
In early December, the Fed cut interest rates for the third time this year but signaled fewer cuts next year as a result of persistent inflation.
“The slower pace of cuts for next year really reflects both the higher inflation readings we’ve had this year and the expectation inflation will be higher,” Fed chair Jerome Powell said Dec. 18.
Americans have also been relying on credit cards this holiday season. A recent report from LendingTree found that 36% of consumers took on debt this year, with 42% already regretting spending as much as they did, and 21% projecting it’ll take five or more months to pay it off. These borrowers are pretty evenly represented by all income levels, including those making under $100,000 a year as well as above $100,000.
The Credit Access Survey by the Federal Reserve Bank of New York showed rising rejection rates for credit cards, mortgages, auto loans, credit card limit extension applications and mortgage loan refinance applications. The average rejection rate for mortgage refinance applications more than doubled in October 2024 at 22%, compared to 9.5% a year before.
While this may indicate financial distress for many households next year, it doesn’t automatically spell systemic risk, several economists and financial experts said.
“Rather than being a sign of broader distress, this increase in delinquencies is explained by a substantial increase in the riskiness of recently issued credit cards,” wrote Scott Fulford and Christa Gibbs in their August 2024 report for the Consumer Financial Protection Bureau.
“Credit card borrowing levels are normal, ratio of credit card balances to income is in the lower part of the historical range, and the inflation-adjusted credit card balances are normal, too,” Neale Mahoney, an economics professor at Stanford University, posted on X on Monday, noting that the headlines about record credit card balances cite non-inflation adjusted numbers.
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