Credit Card Delinquencies Surge Over 50% in 2023 Amid a $17.5 Trillion Consumer Debt Boom

According to the New York Federal Reserve's latest report on Tuesday, credit card delinquencies experienced a staggering surge of more than 50% in 2023, as total consumer debt soared to a monumental $17.5 trillion.

The report reveals that debt classified as "serious delinquency," defined as 90 days or more past due, witnessed an overall increase across various categories, with credit cards being the most severely impacted. With a cumulative debt of $1.13 trillion, credit card debt in serious delinquency reached 6.4% in the fourth quarter, marking a notable 59% escalation from just over 4% at the close of 2022. According to researchers from the New York Fed, the quarterly increase was around 8.5% on an annualized basis.

Delinquencies also surged in mortgages, auto loans, and the broader "other" category. However, student loan delinquencies and home equity lines of credit declined. Overall, 1.42% of the debt was reported as 90 days or more past due, reflecting an increase from just over 1% at the close of 2022.

Wilbert van der Klaauw, the Economic Research Advisor at the New York Fed, expressed concern, stating, "Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels, signalling increased financial stress, especially among younger and lower-income households."

While delinquency rates are rising, New York Fed researchers noted that total debt is increasing at a pace comparable to before the onset of the COVID-19 pandemic in March 2020. Household debt witnessed a quarterly increase of $212 billion, reflecting a 1.2% increase quarterly and approximately 3.6% from the previous year. Notably, credit card debt experienced a substantial 14.5% jump from the same period in 2022, reaching alarming levels.

The surge in credit card debt is attributed, in part, to higher interest rates. The Federal Reserve's tightening cycle, from March 2022 to July 2023, resulted in a 5.25 percentage point increase in the short-term borrowing rate, reaching its highest level in about 23 years. According to Fed data, this increase impacted most adjustable-rate consumer debt products, leading to a surge in the typical rate on credit cards from about 14.5% to 21.5%.

Fed researchers indicated that rising interest rates likely affected delinquency rates. The report also highlighted that payments have remained relatively unchanged despite a decrease in auto prices due to the elevated rate structure.

In the context of student loan debt, a focal point for Washington lawmakers, there was a minimal increase during the pandemic, totaling just over $1.6 trillion. President Joe Biden's forgiveness of approximately $136.6 billion in student loan debt since taking office contributed to a slight decline in the share of debt in serious delinquency to 0.8%. Mortgage debt increased by 2.8% in 2023, with the delinquency rate rising to 0.82%, a quarter percentage point higher than the previous year.