A report has found that nearly half of credit card holders have maxed out their cards or are close to doing so.

• A new report indicates that approximately 40% of credit card holders have reached or nearly reached their credit card limit.
• The increasing number of borrowers with maximum debt levels is a sign of where delinquencies are likely to go.

Some Americans have struggled to maintain financial stability due to the combination of high prices and high interest rates.

Since the Federal Reserve began raising rates in March 2022, nearly 2 in 5 credit cardholders have maxed out or come close to maxing out a credit card, according to a new report by Bankrate.

According to Bankrate, many borrowers who are overextended attribute rising prices and a higher cost of living as the reasons for their financial struggles.

Other reasons cardholders may blame for maxing out a credit card or coming close include job or income loss, emergency expenses, medical costs, and excessive discretionary spending.

According to Sarah Foster, an analyst at Bankrate, many low-income Americans have been forced to take on debt to cover the cost of essentials due to limited options and high credit card rates.

As prices crept higher, so did credit card balances.

The latest TransUnion report reveals that the average balance per consumer has increased by 4.8% year over year, reaching $6,329.

Another report by Bankrate states that the average credit card interest rate is near an all-time high, with half of cardholders carrying debt from month to month.

Having a higher balance directly affects your utilization rate, debt-to-credit ratio, and credit score, with borrowers with higher credit scores typically having higher limits and lower utilization rates.

As interest rates fall, revisiting bonds is a "fantastic time" for holiday shoppers to plan to spend more.

Experts recommend that borrowers maintain revolving debt below 30% of their available credit to minimize the impact of high balances.

According to Bankrate's analysis of Equifax data, the credit card utilization rate exceeded 21% in August.

If you have five credit cards with utilization rates of around 20%, you have a significant amount of debt, according to Howard Dvorkin, a certified public accountant and the chairman of Debt.com. People are currently living beyond their means and relying on credit cards to cover their expenses.

Generation X at risk

According to Bankrate's report, Gen Xers aged 40 to 50 are the most likely to have maxed out a credit card or come close in the past two and a half years.

According to a survey of more than 3,500 adults, including 3,015 credit cardholders and 1,104 who have either maxed out their credit cards or come close, Gen Xers are the most likely to have maxed out their credit cards, with 27% doing so, compared to 23% of millennials and 17% of Baby Boomers. In contrast, young adults in Gen Z are the least likely to have maxed out a card, with only a small percentage doing so.

The "sandwich generation," Gen X, faces the challenge of supporting both their children and the generations that follow them, all while dealing with the unprecedented high costs of higher education and healthcare.

Potential problems ahead

Individuals who have reached or nearly reached their credit card limits are more likely to fall behind on payments.

Both the Federal Reserve Bank of New York and TransUnion reported that credit card delinquency rates are already higher.

Despite the inflationary environment, consumers have been taking on additional revolving debt, but there has been a recent increase in delinquencies, according to Tom McGee, CEO of the International Council of Shopping Centers.

If a borrower fails to pay a bill within 30 days of its due date, the debt is considered delinquent, which can negatively affect their credit score and interest rates on credit cards, car loans, and mortgages, as well as their ability to obtain loans.

If you don't pay your bills on time every month, you will end up paying double for whatever you buy in the future, according to Dvorkin.