American credit card defaults have surged to the highest levels since the aftermath of the 2008 financial crisis, as consumers continue to grapple with years of high inflation. In the first three quarters of 2024, credit card lenders wrote off $46 billion in delinquent loan balances, marking a 50 percent increase from the same period last year. These write-offs, considered a highly monitored measure of loan distress, are the highest since 2010, according to industry data gathered by BankRegData.
Mark Zandi, the head of Moody’s Analytics, emphasized that while high-income households are relatively unaffected, the bottom third of U.S. consumers are struggling. “Their savings rate right now is zero,” he said. The rise in defaults highlights how consumer finances have been stretched thin after years of high inflation, compounded by elevated borrowing costs from the Federal Reserve.
Though banks have not yet reported their fourth-quarter numbers, early signs suggest a worsening situation for many Americans. Capital One, the U.S.’s third-largest credit card lender, reported that as of November, its annualized credit card write-off rate hit 6.1 percent, up from 5.2 percent a year ago. Odysseas Papadimitriou, head of the consumer credit research firm WalletHub, noted, “Consumer spending power has been diminished.”
After the coronavirus pandemic, Americans were initially bolstered by large cash reserves from stimulus spending. However, credit card balances began to rise in 2022 and 2023 due to increased consumer spending, supply chain disruptions, and excessive spending under President Joe Biden’s administration. The Federal Reserve’s decision to raise interest rates to combat inflation has further increased borrowing costs, leading to Americans paying $170 billion in interest charges in 2024 alone.
Many Americans remain hopeful that the Federal Reserve will lower interest rates to ease the financial burden, but the Fed has indicated that it may only reduce rates by half a percentage point in 2025. “Delinquencies are pointing to more pain ahead,” Papadimitriou cautioned.
