Ariel Barnes, a 28-year-old from Jackson, Mississippi, is struggling to pay off $30,000 in credit card debt that she accumulated in college. She has maxed out seven credit cards and is finding it difficult to make minimum payments due to high interest rates. Barnes is not alone, as roughly 15.3% of Gen Z borrowers have maxed out their credit cards, compared to 4.8% of Baby Boomers and 9.6% of Gen Xers. These statistics reveal the financial struggles faced by many Americans, with more people falling behind on credit card bills.
The rising delinquency rates on credit card bills, as reported by the NY Fed, highlight the financial stress experienced by many Americans, regardless of age. Severe delinquencies on credit cards have surpassed pre-pandemic levels and continue to rise, reaching the highest level since 2012. This trend is concerning, with the NY Fed emphasizing the link between maxing out credit cards and falling behind on payments. Those who use a higher percentage of their credit card limit are more likely to become delinquent.
The NY Fed found that younger borrowers, such as Gen Z, are more likely to max out their credit cards due to lower credit limits and less credit history. Gen Z borrowers have a median credit limit of $4,500, compared to $16,300 for Millennials and $21,800 for Gen X. Additionally, borrowers in low-income areas are also more likely to be maxed out on their credit cards. The average credit card interest rate is currently at 20.66%, which is near a record high, making it even more challenging for individuals to pay off their debt.
Experts suggest possible solutions for those trapped in credit card debt, such as transferring high-interest balances to cards with 0% interest, seeking nonprofit credit counseling, and finding ways to increase income and reduce expenses. It is important to prioritize paying off credit card debt to improve financial stability. The Federal Reserve must consider the impact of credit card stress on Americans when making decisions about interest rates, as waiting too long could further strain households, especially if the job market slows down.
Overall, the data from the NY Fed highlights the concerning trend of rising credit card delinquencies and the challenges faced by individuals, particularly younger borrowers and those in low-income areas. It is essential for individuals to take steps to address their credit card debt and prioritize financial stability. As the economy continues to experience fluctuations, it is crucial for policymakers to consider these issues and make informed decisions to support those struggling with debt.
