Credit card debt among millennials in their 30s reached alarming levels towards the end of last year, according to a newly released report from the Federal Reserve Bank of New York. The data, unveiled on Tuesday, revealed that outstanding credit card balances soared to a record-breaking $1.13 trillion in the fourth quarter of 2023, marking a 5% increase from the previous quarter’s $1.08 trillion. Concurrently, the 90-day delinquency rate for credit cardholders surged to 6.36%, a significant rise from 4.01% the previous year.
While delinquencies have seen an uptick across all age groups, the report highlighted a notable escalation in serious delinquency among younger millennials aged 30 to 39 and lower-income households. This trend follows the end of the federal student loan pause in October, which added financial strain to many young adults. Additionally, the persistence of credit card interest rates near 38-year highs exacerbated difficulties in paying off mounting debts, especially during the holiday season.
Wilbert van der Klaauw, economic research adviser at the New York Fed, commented, “This signals increased financial stress, especially among younger and lower-income households.”
Struggle to Meet Payments
The report emphasized that while serious credit card delinquencies increased across all age groups, millennials, particularly those born between 1980 and 1994, surpassed prepandemic delinquency levels starting in the middle of the previous year.
“Borrowers between the ages of 30 and 39 are slipping into delinquency at a faster pace compared to other age groups … it’s perplexing,” stated New York Fed researchers.
In the fourth quarter, Americans aged 18 to 29 exhibited the highest delinquency rates, with at least 10% seriously behind on payments, followed by 30-to-39-year-olds at just under 9%. In contrast, 40-to-49-year-olds had a delinquency rate just above 6%, and 60-to-69-year-olds had the lowest transition to delinquency, with approximately 4% falling over 90 days behind on credit card payments.
The rise in delinquencies among millennials may be attributed to the resumption of federal student loan repayments in October. A separate report from the New York Fed indicated that nearly 23% of borrowers expected to miss a student loan payment, with 39% of those with incomes below $60,000 anticipating missed payments.
Potential Relief in Interest Rates
The report suggested that the prolonged increase in interest rates by the Federal Reserve may contribute to the climbing delinquency rates. Despite the recent decision to leave the benchmark interest rate unchanged, experts anticipate some card issuers may start softening interest rates sooner.
Jacob Channel, senior economist at LendingTree, stated, “The credit card marketplace is so crazy-competitive that it is probably only a matter of time before some issuers tinker with lowering rates on new card offers.”
Although the Fed may delay lowering rates, there is optimism that card issuers may take the initiative to attract new customers by slightly reducing interest rates. The average APR on a new credit card, according to LendingTree, stood at 24.59% in January, showing a promising sign after months of notable increases.
