Only 51% of cardholders in the United States said they were confident in paying off their credit card balances in the last month, according to Lending Tree’s monthly Credit Card Confidence Index. That’s the lowest level the index has reached since the organization began tracking consumer confidence more than five years ago and 7 points from November’s estimate.
That’s not the only concerning financial marker to emerge from the tail-end of the past year — credit card balances are at a high point, and other types of consumer borrowing are also rising.
Worrying Debt Trends in 2023
A new year might be a time for fresh starts, but many consumers began 2024 with a heavy debt burden. However, there’s room for optimism, with the potential for wages to rise and interest rates to fall in 2024.
While consumers have become increasingly dismal about their prospects of clearing their balances throughout 2023, December saw the sharpest plummet.
Unsurprisingly, consumers are concerned about their finances — loan balances rose significantly over the same period, leaving many struggling.
Credit card balances soared over $1 trillion in the third quarter of 2023. It was the second consecutive quarter of credit card balances surpassing $1 trillion in the U.S., continuing recent trends of increases in debt.
The same report also found that mortgage balances rose to $12.14 trillion, student loan balances rose to $1.6 trillion, and auto loan balances rose to $1.6 trillion. Overall, it paints a gloomy picture of the landscape.
The New York Fed will release equivalent data for the final quarter of 2023 later this week.
Overall consumer borrowing rose by $23.75 billion in November, more than doubling economists’ expected rise of $9 billion.
The growth is largely due to the nearly $20 billion spike in revolving credit utilization, making this the third-highest monthly increase since record-keeping began in 1943.
Cardholders Struggle To Meet Payments
Philadelphia Fed researchers found that only 33.18% of accounts paid off their credit card balances in full in the third quarter of 2023, the lowest share since 2020. The number of borrowers who were 30, 60, or 90 days late each increased.
Delinquency rates are now rising following a temporary drop during the pandemic, a time when credit use declined due to stimulus checks and consumers having fewer things to spend money on. For the first few months post-pandemic, trends normalized — but they have now gone beyond this point and surpassed 2019 levels.
Economic Reasons for These Troubles
Spikes in borrowing over the holidays are standard, as people turn to credit cards and Buy Now, Pay Later (BNPL) schemes to fund gifts, food, and other expensive purchases.
However, 2023 showed more extreme tendencies due to additional factors at play.
One was the higher interest rates. The average annual percentage rate (APR) for credit cards is now 24.59%, the highest rate in years. These higher rates make it harder for people to pay off their balances — once they miss one payment, their debt accumulates faster, trapping them in a debt cycle. Interest rates for other financial products also increased.
A second factor is harsh economic conditions. Although the U.S. economy hasn’t officially entered a recession yet, fighting inflation has been an ongoing issue over the past few years. This is also why the Fed has hiked interest rates, as it discourages borrowing. Many consumers have struggled to adapt to the higher prices, increasing the need to turn to loans instead.
Finally, student loan payments resumed in October after a temporary grace period during COVID-19. This has left many with a lower disposable income, and lower-income households have been the most affected.
With these exceptional circumstances, the usual impact of the holidays hit consumers harder.
Reasons for Optimism
Despite this bad news, there is some hope. On a macroeconomic scale, the Federal Reserve may reduce rates in 2024, translating to lower credit card interest rates. This would help make it easier for consumers to pay back their outstanding balances.
Plus, wages are growing faster than inflation, and unemployment remains low. Higher disposable income would also help consumers pay off their debt.
Other data shows that people strive to spend less and pull back spending compared to 2021. 44% of YouGov respondents said they wanted to save money, reduce spending, and pay off debt in the new year. Plus, there’s consumer optimism when it comes to economic prospects.
Those who built up consumer debt over 2023 and hope to pay it off can do so by tracking their expenses, keeping a budget, and ensuring they have the lowest interest rate available.
This article was produced by Media Decision and syndicated by Wealth of Geeks.
