Record $1.14 trillion in credit card debt, reveals New York Fed research.

• The Federal Reserve Bank of New York has released a report stating that Americans collectively owe a record $1.14 trillion on their credit cards.
• Young adults, who are more likely to be renters with less financial stability, are increasingly struggling to keep up with their credit card debt.

The Federal Reserve Bank of New York has reported that Americans' total credit card debt has reached a record $1.14 trillion.

In the second quarter of 2024, credit card balances increased by $27 billion, representing a 5.8% year-over-year growth.

The New York Fed discovered that credit card delinquency rates were higher, particularly among younger adults, or borrowers aged 18 to 29 and 30 to 39, who were likely more affected by the Covid-19 pandemic.

The "underconsumption core" is gaining popularity, and the recession is making a comeback. Despite inflation cooling down, more Americans are facing financial difficulties.

Who is falling behind on credit card bills

During the pandemic, borrowers may have overextended, according to New York Fed researchers who made this statement on a press call on Tuesday.

Researchers found that delinquent borrowers are often renters, who have shorter credit histories and lower credit limits, making them more financially vulnerable and prone to missing payments.

The New York Fed discovered that approximately 9.1% of credit card balances became delinquent over the past year.

Since the pandemic, homeownership has been a valuable tool for wealth creation, but those who cannot afford housing have faced challenges in achieving financial security, says Brett House, an economics professor at Columbia Business School.

Studies show that those who enter the workforce during a period of high unemployment have lower long-term earnings, which may be particularly true for millennials who transitioned into delinquency and experienced the prolonged negative effects of graduating into an economic downturn, according to New York Fed researchers.

50% of Americans are carrying a balance

A recent survey by Achieve found that 57% of consumers use credit cards to meet their financial needs, while 36% struggle to pay their recurring debts on time. The survey polled 2,000 adults with consumer debt in June.

Most of those surveyed who missed a payment cited job loss or reduced income as the primary reason for falling behind.

Another report by Bankrate states that half of cardholders carry debt from month to month.

Americans' savings have been reduced due to high inflation and interest rates, causing more people to carry debt for extended periods, according to Ted Rossman, Bankrate's senior industry analyst.

Credit card rates top 20%

The cost of borrowing money through credit cards has increased due to the recent rise in interest rates, which were already high.

The federal funds rate's rise led to an increase in the prime rate, which in turn caused credit card rates to increase.

After 11 rate hikes, the average credit card rate for lower-income households has increased to more than 20%, which is close to an all-time high.

Rossman emphasized the urgency of paying off credit card debt, as balances reach record highs and interest rates approach all-time lows.

If you made minimum payments on an average credit card balance of $6,218 with an annual percentage rate of 20%, it would take you 18 years to pay off the debt and cost you more than $9,300 in interest over that time period, according to Rossman's calculations.