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Insight of the Day: Nearly one-fifth of Americans have ‘maxed out’ their credit cards as inflation and high interest rates push delinquencies to 3-year high

Amidst high inflation and rising interest rates, Americans are accumulating debt at an alarming pace, with a growing number falling behind on payments. A new report from the New York Federal Reserve reveals that credit card delinquency rates have been steadily climbing since 2021, exceeding pre-pandemic levels.

Key findings from the report include:

  • Rising Delinquency Rates: Credit card delinquency rates are increasing, driven by higher utilization rates, particularly among younger borrowers and those in lower-income areas.

  • Maxed-Out Borrowers: Nearly one-fifth of borrowers are using at least 90% of their credit limit, and a significant portion of these "maxed-out" balances are becoming delinquent.

  • Inflation and Interest Rates: Inflation and higher interest rates are identified as key factors contributing to the rise in debt and delinquent payments.

  • Financial Strain: Consumers are struggling to pay recurring debts on time, with many reporting reduced spending to cope with financial pressure.

The research raises concerns about the long-term financial health of Americans, particularly among younger generations who are starting their adult lives with higher credit card debt than previous generations. The escalating inflation and rising interest rates are exacerbating the issue, making it increasingly difficult for consumers to manage their debt.

While the Fed's report focuses on the problem, another report by Achieve, a digital personal finance company, sheds light on the reasons behind the increasing credit card debt. The company's survey found that inflation and reduced income are the top reasons for delinquent payments, followed by forgetfulness.

Both reports highlight the need for consumers to prioritize managing their debt and adapting to the challenging economic environment. Achieve's co-founder and co-CEO, Andrew Housser, emphasizes that "for many consumers, money is going out the door as quickly as it's coming in, if not faster." He stresses the importance of understanding household debt and credit to navigate these difficult times.

In conclusion, the rising credit card delinquency rates signal a growing financial burden on American households. Inflation, rising interest rates, and reduced income are contributing to the problem, making it crucial for consumers to adopt prudent financial practices and seek help if needed.

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