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Despite all evidence of a strong economy, Americans are still scrambling to keep up their credit card payments. According to data from the Philadelphia Federal Reserve, 10.75% of active credit card accounts were only able to make the minimum payment between July and September 2024. That is the highest rate in 12 years. Meanwhile, credit card balances and delinquencies also continue to rise, alarming consumer financial health.
“Warning signs of consumer stress are emerging,” said Andrew Kish, assistant vice president in the Financial Monitoring Group of the Philly Fed. “More borrowers are falling behind on their credit card payments. We’ll closely monitor these trends in the coming quarters.”
While overall economic gauges indicate consumer spending remains robust, such aggregated statistics hide the troubles of lower- and middle-income Americans. “The disheartening truth is that upper-income consumers largely offset the financial struggles of lower-income households,” said economists at Wells Fargo in a recent report. This dynamic skews overall spending numbers to present an illusion of economic normalcy even as many Americans face increased financial pressures.
Lower-income families have increasingly turned to credit and reduced savings. Savings rates for both groups are lower following their respective periods turning negative in early 2022. Still, these rates, although far from recovery, have been rising.
“What appears to be healthy spending now is paid for with future financial fragility for working class families,” Wells Fargo economists said.
A December survey by Resume Now found that 73% of workers struggle to afford anything beyond basic living expenses and about one-third have had to resort to debt to cover costs. A NerdWallet survey said the average household with revolving credit card debt owes $10,563.
Compound interest will add to the problem. Using an average credit card interest rate of 20.27%, it will take 18 years to pay off a $6,380 balance with just minimum payments, costing an additional $9,344 in interest.
From July to September 2024, revolving credit card balances reached $645 billion, a 52.5% increase since their 2021 low. Total credit card balances hit $914 billion, the highest level recorded since the Philadelphia Fed began tracking the data in 2012. Delinquencies also climbed, with 3.52% of credit card balances 30 or more days past due—more than double the rate of 1.57% during the pandemic low in mid-2021.
Although paying off credit card debt can be challenging, experts recommend the following steps:
1. Pay More Than the Minimum: Paying only the minimum keeps consumers in debt for years and costs thousands in interest. Whenever possible, make larger payments to reduce the balance faster.
2. Get a Balance Transfer Card: Those cards with introductory 0% interest rates enable consumers to make more rapid payoffs on outstanding balances. So, for example, paying $300 per month on a balance of $6,380 if there is no interest will repay the debt within 21 months.
3. Credit counseling- For anybody who has bad credit scores or amounts in excess of $5,000, the nonprofit credit counseling agencies like Money Management International can assist in developing effective repayment plans and budgets.
The economic picture remains a tale of two realities. While upper-income households are driving resilient spending figures, lower-income Americans are facing increasing debt, decreasing savings, and heightened financial vulnerability. Policymakers and financial institutions are paying close attention to these trends, as the gap between broader economic growth and individual financial health continues to grow.
