Rising Credit Card Strain: Delinquencies and Minimum Payments Hit New Highs in 2024

Written by Andy Liao

January 22, 2025

In the third quarter of 2024, a series of concerning trends in U.S. consumer credit card usage have emerged, according to a recent report from the Philadelphia Federal Reserve. As rising interest rates and inflationary pressures continue to weigh on households, the share of credit card holders more than 30 days past due has increased, and the number of people only making minimum payments on their cards has reached a 12-year high. While these developments indicate a shift in consumer financial behavior, they are not yet at levels that suggest a repeat of the financial crises seen in 2008-09.

A Surge in Minimum Payments

One of the most striking trends from the third-quarter data is the rise in the share of active credit card holders making only minimum payments. This figure has surged to 10.75%, the highest level recorded since tracking began in 2012. This marks a notable increase from previous periods, continuing a trend that started in 2021. The timing of this uptick coincides with soaring interest rates and growing delinquency rates, both of which are putting increasing strain on consumers.

Minimum payments are often seen as a way for cardholders to manage their monthly obligations while minimizing the immediate financial burden. However, paying only the minimum typically leads to higher interest payments in the long run and can significantly extend the time needed to pay off a balance. For many consumers, this reflects a growing reliance on credit to bridge gaps in daily expenses, which can lead to further financial strain.

Delinquency Rates Show an Uptick

The percentage of credit card holders who are more than 30 days past due has also risen to 3.52%, up from 3.21% in the previous quarter. While this represents a gain of more than 10%, it is still a manageable level in historical terms. For context, the delinquency rate during the height of the 2008-09 financial crisis peaked at 6.8%, more than double the current rate. Thus, while the recent increase in delinquencies is concerning, it is not yet indicative of the kind of widespread financial distress seen in the aftermath of the global recession.

However, it is worth noting that the current delinquency rate is more than double the low point of 1.57% seen in the second quarter of 2021, during the pandemic-era economic lull. As the economy has recovered and consumer spending has returned to pre-pandemic levels, credit card balances have also risen sharply. More consumers are falling behind on their payments as they face the dual challenges of rising interest rates and growing debt.

High Interest Rates and Growing Debt Balances

Credit card interest rates have been climbing steadily, reaching an average of 21.5% in recent months, according to Federal Reserve data. This is a striking 50% increase from just three years ago. In fact, some estimates, such as those from Investopedia, put the average rate even higher, at 24.4%. These elevated rates are putting a serious strain on consumers’ ability to pay off credit card debt. As interest rates rise, the cost of carrying balances on credit cards becomes more burdensome, pushing more consumers to opt for minimum payments just to avoid default.

At the same time, credit card balances have swelled. Outstanding revolving credit has surged to $645 billion, up more than 50% from the low of $423 billion recorded in mid-2021. This growth in credit card debt is partially a result of both the rising cost of living and consumers’ increasing reliance on credit to manage everyday expenses. With higher debt loads and the compounding effect of interest, many consumers may find themselves in a cycle of rising debt that becomes harder to break.

What Does This Mean for Consumers and the Economy?

While the current data may not signal an immediate crisis, the trends are concerning for both individual consumers and the broader economy. For many households, credit cards are becoming an increasingly necessary tool to manage cash flow, yet the rising costs associated with maintaining these balances are putting financial strain on consumers. The shift towards making only minimum payments and the uptick in delinquencies could indicate that many people are beginning to struggle with the combination of high interest rates and growing debt.

For the broader economy, these trends could signal a potential slowdown in consumer spending as people dedicate more of their income to servicing debt rather than engaging in discretionary spending. Additionally, rising delinquencies could eventually impact lenders, as higher rates of default may affect profitability and risk assessments.

That said, it is important to note that the current levels of delinquencies and minimum payments are still far below the crisis levels seen during the Great Recession, suggesting that there is time to address the underlying financial pressures before they escalate into a more serious economic issue. Policymakers and financial institutions may need to closely monitor these trends and adjust their strategies accordingly to help consumers manage their debt and avoid a potential crisis.

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