According to recent survey data released by the Federal Reserve Bank of New York, Americans are growing increasingly anxious about their credit card debt. Ted Rossman, Senior Industry Analyst, Bankrate, joined TheStreet to discuss what's driving this trend.
Related: How to avoid credit card debt this holiday shopping season
Transcript:
CONWAY GITTENS: So a recent Fed study showed that Americans are more anxious than ever before. When it comes to making their credit card payments. What's driving this trend?
TED ROSSMAN: Inflation and high interest rates have been a nasty combination. We're seeing record high credit card balances right now, according to the Fed, and rates that haven't backed off all that much. The average credit card rate is still at 20.5% It's only down slightly from its peak a few months ago. There's a cumulative effect to all this. We're seeing more people financing daily essentials. People tend to get into credit card debt for practical reasons, everything from day to day bills to one offs like a medical bill or a car repair. It's not usually a vacation or a shopping spree. It's usually practical stuff, but it's hard to dig out with interest rates as high as they are.
CONWAY GITTENS: And what do you make of the data. When I looked at the data, it was the people in the peak earning years that were the most worried and people that were like over $100,000, $150,000 a year. Those people that's we consider that kind of high income earners, yeah?
TED ROSSMAN: It is kind of surprising. You could maybe say there's a bit of keeping up with the Joneses going on here, but I don't believe a lot of these people would view it that way. I think they would come back to just the rising cost of living. And I mean, Yes, if somebody has an impressively high income on paper, they may say that evaporates pretty quickly. When you think about high housing costs, high child care costs, high, just about everything costs. I mean, especially expensive parts of the country along the Coast. Life is really expensive these days. And that cumulative toll is important. I mean, we recently did a study. We found that the cumulative toll of inflation these past three years has been about 20% and wages have only gone up 17% on average during that span. And it depends on the category, too. I mean, if we're talking something like insurance bills have really skyrocketed, child care, higher education costs, it's becoming harder for people to pay these bills and more are relying on credit to make ends meet.
CONWAY GITTENS: So are you actually seeing a follow through. I know sometimes when we look at the consumer confidence and consumer sentiment reports, people say one thing, but then when we get the retail sales report, the numbers are up. So this survey said that people are anxious that they won't be able to make the credit card payment. Are you actually seeing the delinquency rate go up?
CONWAY GITTENS: Credit card delinquencies are at their highest point since 2011, and they've basically doubled in the past couple of years. So that does sound alarming. On the other hand, though, a lot of banks view this as normalization after the pandemic weirdness. Credit card balances and delinquencies fell a lot in 2020 and 21. And Yes, they've gone up a lot since then. But banks view this as kind of normalization more or less. Now could say, well, 2019 was normal. And if we've blown past that and we're back to 2011 levels, that is a bit alarming. Banks don't seem overly concerned in the aggregate. I would describe it more as pockets of trouble, especially people with lower incomes, lower credit scores. They're certainly going to be more vulnerable. Credit is still flowing freely. In general, it has gotten harder around the margins. We have seen about a 15% drop in originations the past couple of years. So credit is still flowing freely. If you have a hefty income and a good credit score for those on the lower end of those spectrums are finding more difficulty.
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