A number of consumers are defaulting on their credit cards and car loans to the point where the number of defaults reported are the highest seen since the financial crisis. With inflation not nearing an end any time soon and interest rates continuing to rise, the number of consumers defaulting is expected to grow.
This information comes from data provided by the credit agency, Equifax. The agency found that credit card delinquencies have hit 3.8 percent while car loan defaults have hit 3.6 percent. These figures are the highest ones seen in more than 10 years.
The increase in defaults and delinquencies can be attributed to the tough position in which many American consumers have found themselves. Many of them have been forced to decide whether they pay their credit card bills or pay for rent or groceries to provide food for their family or a roof over their heads.
With no safety net programs on the horizon, such as those stimulus programs seen during the COVID-19 pandemic, many consumers have turned towards opening new lines of credit to pay for necessary expenses. The problem is many of these new sources of credit come with high interest rates, making it nearly impossible for them to ever pay off.
Retailers have even noticed the increasing delinquency rates among their own customers. Macy’s company chief operating officer said that the store card delinquency rates were increasing faster than they had originally anticipated.
Currently, there are 70 million more credit card accounts open now than what was seen before the pandemic. In addition, credit card debt has gone over $1 trillion for the first time ever, according to figures from the New York Federal Reserve.
With the Fed considering another increase at the end of the month to bring down inflation, it is likely that interest rates on credit cards will climb even higher. For individuals who are already in vulnerable financial situations, this possibility will only make their situations worse.
As the holiday season approaches, economists are concerned that consumers will only add more to their existing debt loads at a time when energy costs will be increasing just as the cold weather kicks in. If consumers continue to rely on their credit cards to pay for living expenses, their balances will only increase further, leading to even more potential delinquencies and defaults.
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