Chief Investment Officer at AWAIM® and bestselling author Ivan Illan highlights the growing concern of ballooning credit card balances in the U.S., which have surpassed $1.13 trillion. Americans, having spent a significant portion of pandemic-era stimulus money, are now facing higher debt levels as they continue their elevated consumption habits. The issue is exacerbated by the fact that the average credit card interest rate is currently at a hefty 24.37%, leading to a rise in delinquency rates on credit card payments.
Although the credit card delinquency rate of 9.74% may seem relatively close to the long-term average of 8.95%, there are other factors to consider, such as the increasing cost of servicing debt. The high interest rates are impacting disposable income, causing many Americans to cut back on expenses like dining out and groceries. While some argue that inflation is trending lower, Illan believes that prices are still steadily rising, leading to a challenging economic situation for consumers.
Illan points to a behavioral economic condition triggered by pandemic shutdowns, where consumers engaged in a “revenge spending spree” post-lockdown. This euphoric state, similar to a market bubble, led to a surge in personal debt that could potentially result in severe financial consequences for many households. Additionally, corporations are facing the pressure of repaying or refinancing their debt, potentially leading to layoffs to free up cash flow, further exacerbating the financial stress already present.
Finance professionals are urged to be conscious of the impact on corporate treasury and market yields as risk assessments on the U.S. economy evolve. Short-term bonds may benefit from a flight to safety trade, while longer-term bonds could experience pricing pressure. It is essential for individuals to consult with licensed professionals for personalized advice on their financial situation. The Forbes Finance Council is an exclusive organization for executives in accounting, financial planning, and wealth management firms, offering valuable insights and resources for industry professionals.
