Consumer stress related to credit card debt has been on the rise, as a recent report from the Philadelphia Federal Reserve indicates. The share of credit card holders making only minimum payments has reached a 12-year high, with the percentage rising to 10.75% in the third quarter of 2024. This trend has been fueled by soaring average interest rates and an increase in delinquencies.
Despite this concerning trend, there are also positive signs in the consumer economy. Consumer spending, adjusted for inflation, rose by 2.9% in November, according to Goldman Sachs. The firm sees consumers as a source of strength in the economy, with spending expected to slow but still grow at a healthy rate in 2025.
However, challenges remain as credit card interest rates have climbed to an average of 21.5%, a significant increase from previous years. This has led to higher balances on revolving credit, with consumers owing $645 billion as of the third quarter of 2024. Additionally, a growing number of consumers are relying on credit cards for essentials and making only minimum payments, leading to long-term debt accumulation.
In addition to credit card debt, mortgage originations have also declined to a more than 12-year low, with debt-to-income ratios on home loans increasing. High mortgage rates are discouraging homeowners from refinancing, further impacting the housing market.
While there are indications of strain in the consumer economy, there are also positive signs of resilience. Consumer spending continues to drive economic growth, despite challenges related to credit card and mortgage debt. The overall outlook for consumers remains uncertain, with potential for both strength and vulnerability in the coming year.