Delinquencies are on the rise while a record number of consumers are making minimum credit card payments.

• In the third quarter of 2024, the percentage of active credit card holders making only minimum payments reached a record high of 10.75%, surpassing all previous data going back to 2012.
• The percentage of card holders with past-due accounts increased by more than 10% from 3.21% to 3.52%.
• Despite the increasing delinquency rate, it is still lower than the 6.8% peak during the 2008-09 financial crisis and does not yet suggest significant stress.

The Philadelphia Federal Reserve report indicates that the number of credit card holders paying only minimum payments on their bills has increased, resulting in increased consumer stress.

The number of active cardholders making minimum payments increased to a 12-year high in the third quarter of 2024, according to data.

The level of interest rates rose to 10.75% during the period, which is part of a trend that started in 2021 and has intensified as average interest rates have increased and delinquencies have also accelerated. This increase also set a new record for a data set that began in 2012.

As minimum payments increased, delinquency rates also rose.

The percentage of card holders more than 30 days past due increased by 0.31% to 3.52%, representing a 10.29% gain from the previous quarter's 3.21%. This is also more than twice the pandemic-era low of 1.57% recorded in the second quarter of 2021.

Despite inflation surpassing a 40-year high in mid-2022 and remaining above the Fed's 2% target for nearly four years, consumer spending has not decreased.

Signs of strength

Despite the increasing delinquency rate, the current pace is still below the 6.8% peak during the 2008-09 financial crisis and does not yet suggest serious stress.

"Elizabeth Renter, senior economist at NerdWallet, stated that while a lot is still unknown, recent events have shown how quickly things can change. She added that the baseline expectation is that consumers in the aggregate economywide will remain strong."

In November, consumer spending increased by 2.9% annually, according to Goldman Sachs, which stated Tuesday that consumers are a "source of strength" in the economy. The firm predicts that consumer spending will slow down slightly in 2025, but it will still grow at a healthy 2.3% real rate in 2025. Additionally, Goldman anticipates delinquency rates showing signs of stabilizing.

If consumer spending continues to increase, it may face some challenges.

The average credit card rate has increased by 50% over the past three years, reaching 21.5%, according to Fed data. Investopedia reports an even higher average rate of 24.4%, stating that low-cost cards for borrowers with poor credit history have surpassed 30%. Despite the Fed's reduction of its benchmark interest rate by one percentage point last year, credit card costs have remained high.

Revolving credit balances are increasing at a rapid pace, with the total amount owed reaching $645 billion in the third quarter of 2021, a 52.5% increase from the decade low of $423 billion recorded in the second quarter of the same year, according to the Philadelphia Fed.

The number of respondents using credit cards for essentials has increased to 48%, while the NerdWallet survey found that 22% are only making minimum payments.

According to NerdWallet, if you have an average credit card balance of $10,563 and only pay the minimum, it will take 22 years and cost $18,000 in interest.

"As prices rise, people will rely more on credit cards for necessities. Adding higher interest rates makes it harder to manage finances, and if only minimum payments are made, it can lead to financial difficulties quickly."

The New York Fed survey for December revealed that the average perceived probability of missing a minimum debt payment in the next three months was 14.2%, which is the same as September and the highest since April 2020.

Home loans slow

It's also not just credit cards where households are feeling the pinch.

In the third quarter of 2021, mortgage originations reached a 12-year high of $219 billion. However, in the third quarter of 2022, originations had decreased to $63 billion, marking a significant decline.

The central bank branch stated in a report that low fixed-rate mortgages have reduced mortgage demand due to high mortgage rates.

The debt-to-income ratios on home loans have increased by 4 percentage points over the past five years, reaching a high of 26% recently.

Another challenge to housing and homeownership is the recent increase of the typical 30-year mortgage rate above 7%.