During the Great Financial Crisis, a depressing time of global economic downturn, credit card losses increased while credit card use fell over 10% in each of the first three months of 2009. Since then, our society has not witnessed losses rising at such a rapid rate. That is, until today, as Americans’ credit card debt stands at a whopping $1.031 trillion.
Some of you may be wondering how we arrived at this point. Well, inflation and interest rates, together with consumer spending and prices of goods, tell us all we need to know. Back in July of 2023, personal expenditures had already jumped 3.3% from a year ago, with consumers buying clothing, groceries, pharmaceuticals, and more. In the same month, interest rates were between 5.25%-5.50%, the highest in 20+ years. To make matters worse, credit card companies began charging more as a result. A record high 20.6% became the new credit card rate.
Furthermore, purchases the U.S. population made amid the growing pandemic intensified the situation, where more than 3½% of car loans and credit cards became delinquent. For credit cards, that means a payment is late by 30 days or more. On top of delinquencies, people face high utility bills in the fall and winter. In addition to bills are student loan balances, in which interest began accruing after the pause ended September 1st and payments are poised to resume in October.
Even though the problem affects much of America, certain places are being hit the hardest. Connecticut, New York, and New Jersey, all in the Northeast region, currently share an average credit card debt in the $9,000 range. In contrast, Indiana and Kentucky have amounts slightly below $6,000, making them the states with the lowest debt. When we look closely into locations, what we may not realize is the negative impact on our retailers: Macy’s, Nordstrom, and Kohl’s to name a few. In fact, Macy’s executives reported that revenue recently dropped $84 million!
All in all, the large amount of debt is not going unnoticed but will be very difficult to handle going forward. For instance, Goldman Sachs predicts credit card losses will continue to climb through the end of 2024 to early 2025. Plus, the Fed indicated it could continue raising interest rates to control inflation. Regardless, there are ways to mitigate the issue: spend within your means, use cash instead of credit cards, and do not ruin your financial futures with instant gratification buys
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