Americans Have an Inflation-Induced Debt Hangover

Red-hot inflation may have cooled, but it’s still pretty scorching for some Americans falling behind on their credit card payments. 

In a sign of how much people relied on their credit cards to cope with higher prices, a growing portion of U.S. credit card debt is becoming delinquent each quarter, researchers at the New York Federal Reserve Bank said Tuesday.

During the second quarter, 7.2% of credit card debt slipped into delinquency (became at least 30 days overdue) — the most since 2012, data released in their latest quarterly report on household debt showed. By comparison, a little over 4% became delinquent during several quarters of 2021 and 2022, and in the first quarter of this year, 6.51% became delinquent. It was in the high 6% range just before the pandemic. 

More debt has become overdue in the last year and a half, reflecting the end of many of the temporary government benefits meant to cushion people from the initial economic blow of COVID-19 lockdowns, researchers said. At the same time, inflation reached over 9% last year — the highest rate in more than four decades — squeezing household budgets already readjusting to the post-pandemic economy. The total amount of credit card indebtedness broke $1 trillion for the first time in the second quarter, increasing by $45 billion to $1.03 trillion.

What’s happening now is a return to normalcy, according to Joelle Scally, a senior data strategist at the Federal Reserve Bank of New York. 

“While delinquency rates have edged up, they appear to have normalized to pre-pandemic levels,” Scally said in a statement that accompanied the data.

Mirroring the trend for credit cards, auto loans have also been flowing into delinquency more and more over the past year and a half. During the second quarter, 7.28% became delinquent — the most for any quarter since 2018 — and up from 6.88% in the first quarter.  

While delinquency rates have been far worse — both credit card and auto loan rates have soared into the double-digits at previous points in the two decades the NY Fed has been tracking it — the uptick is quite a change from the pandemic years. Between extra unemployment benefits, multiple rounds of government stimulus checks, a reprieve on student loan payments, and laws protecting people who couldn’t pay their mortgages, they’d never been lower for either credit cards or auto loans. 

Fortunately, the NY Fed economists are still quite optimistic about the American consumer, even with inflation stubbornly resisting pre-pandemic levels and borrowing costs reflecting the highest benchmark interest rate in 22 years.

“There is little evidence of widespread financial distress for consumers,” Scally and her colleagues wrote in a blog post accompanying the new data. “American consumers have so far withstood the economic difficulties of the pandemic and post-pandemic periods with resilience.”

Correction: A previous version of this story misidentified what the delinquency rates represent. They refer to the percentage of credit card debt that is newly delinquent, not the percentage of credit cardholders.