An IMGW News Report
US credit card defaults have soared to their highest level since the aftermath of the 2008 financial crisis, highlighting the financial strain faced by lower-income households after prolonged inflation and dwindling pandemic-era savings.
Credit card lenders wrote off $46bn in seriously delinquent loan balances in the first nine months of 2024, a 50% increase from the same period last year and the highest level in 14 years, according to data from BankRegData. Loan write-offs occur when lenders deem debts unlikely to be repaid and are a key indicator of severe financial distress.
“High-income households are fine, but the bottom third of US consumers are tapped out,” said Mark Zandi, head of Moody’s Analytics. “Their savings rate right now is zero.”
This rise in defaults reflects the growing financial pressures on US consumers, exacerbated by persistently high inflation and elevated borrowing costs set by the Federal Reserve. Credit card delinquencies, a precursor to write-offs, peaked in July and remain nearly a percentage point higher than pre-pandemic levels.
Capital One, the third-largest US credit card issuer, reported that its annualised write-off rate reached 6.1% in November, up from 5.2% a year earlier.
The surge in defaults follows a period of elevated consumer spending post-lockdowns, when Americans, flush with cash, eagerly returned to shopping. Credit card issuers, eager to capitalise on this trend, extended credit to borrowers who might not have previously qualified. This led to a $270bn increase in credit card balances over 2022 and 2023, pushing total credit card debt beyond $1tn by mid-2023.
Higher balances, coupled with rising interest rates, have left many Americans struggling to repay their debts. In the 12 months to September, US consumers paid $170bn in credit card interest, depleting savings, particularly among lower-income households.
The Federal Reserve’s recent forecast of slower-than-expected rate cuts in 2025 has dimmed hopes of financial relief. Meanwhile, nearly $37bn in credit card debt remains at least one month overdue.
Donald Trump’s proposed tariffs, which could drive up inflation and interest rates, pose additional challenges for consumers already under strain, said WalletHub’s Odysseas Papadimitriou. “Delinquencies are pointing to more pain ahead.”
