Americans are piling up credit card debt at an alarming rate, with balances reaching a record high of $1.08 trillion in the third quarter of 2023. This surge in debt is being accompanied by a rise in delinquencies, as more and more borrowers are struggling to make their payments.
According to the Federal Reserve Bank of New York, the average credit card balance is now $9,340, up from $8,940 in the previous quarter. This is the highest average balance on record.
Delinquencies are also on the rise. The rate of credit card accounts that are delinquent by at least 30 days rose to 2.77% in the third quarter, up from 2.43% in the previous quarter. This is the highest delinquency rate since the third quarter of 2012.
There are a number of factors contributing to the rise in credit card debt and delinquencies. One factor is the strong economy, which has led to increased consumer spending. Another factor is the rising cost of living, which has made it more difficult for some borrowers to make ends meet. Additionally, the Federal Reserve has been raising interest rates in an effort to combat inflation, which has made credit card debt more expensive.
The rise in credit card debt and delinquencies is a cause for concern. Delinquencies can damage a borrower’s credit score and make it difficult to obtain loans in the future. In some cases, delinquencies can lead to bankruptcy.
The situation is the result of policy changes that were implemented almost 40 years ago, according to Lisa McCormick, a consumer advocate who earned nearly four of ten votes cast for US Senate in New Jersey’s 2018 Democratic primary election.
“The current rise in credit card debt and delinquencies is a symptom of a broader problem in the United States economy,” said McCormick. “This problem is rooted in a set of policies known as Reaganomics, which were implemented in the early 1980s under President Ronald Reagan.”
“Reaganomics was based on the theory of supply-side economics, which argues that cutting taxes on businesses and high-income earners will stimulate economic growth,” said McCormick. “The theory holds that when businesses and individuals have more money, they will invest it in new businesses and products, which will create jobs and boost the economy, but Reaganomics has had a number of unintended consequences, including increased income inequality and a growing national debt.”
“The tax cuts that were part of Reaganomics disproportionately benefited wealthy Americans and corporations, while doing little to help low- and middle-income earners. This has led to a widening gap between the rich and the poor,” said McCormick.
“The national debt has also grown significantly under Reaganomics,” said McCormick.
“The Reagan administration cut taxes and increased spending, which led to far greater budget deficits,” said McCormick.
“The budget deficit is the difference between the government’s revenue and its expenses,” said McCormick.
“When the government spends more than it takes in, it has to borrow money to cover the difference. This borrowing adds to the national debt,” said McCormick.
“The national debt is now at a record high of over $33 trillion. This debt is a burden on the economy, as it diverts resources away from productive investments and makes it more difficult for the government to respond to emergencies,” said McCormick.
“The rise in credit card debt and delinquencies is a sign that Reaganomics has failed to deliver on its promises,” said McCormick.
“The tax cuts that were part of Reaganomics have not led to sustained economic growth, and the cuts to social programs have made it difficult for many Americans to make ends meet,” said McCormick.
“As a result, more and more people are turning to credit cards to make ends meet, which is leading to an increase in debt and delinquencies,” said McCormick.
“The current situation is unsustainable,” said McCormick.
“The United States cannot continue to borrow money indefinitely, and the growing national debt is a threat to the economy,” said McCormick.
“The government needs to take steps to reduce the deficit and address the root causes of the problem, such as income inequality and the high cost of living,” said McCormick.
“In the meantime, there are a number of things that individuals can do to protect themselves from the negative consequences of Reaganomics,” said McCormick.
“One is to create a budget and track their spending. This will help them to identify areas where they can cut back and make sure that they have enough money to cover their essential expenses,” said McCormick.
“Additionally, individuals should avoid using credit cards for everyday purchases and only use them for purchases that they can afford to pay off in full each month,” said McCormick.
“The current situation is a serious problem, but it is not insurmountable,” said McCormick.
“By taking steps to reduce the deficit and address the root causes of the problem, the government can help to ensure a more equitable and prosperous future for all Americans,” said McCormick.
There are a number of things that borrowers can do to avoid falling behind on their credit card payments. One is to create a budget and track their spending. This will help them to identify areas where they can cut back and make sure that they have enough money to cover their essential expenses, including their credit card payments.
Borrowers should also make sure that they are only using credit cards for purchases that they can afford to pay off in full each month. They should also avoid carrying a balance on multiple credit cards, as this can make it difficult to manage their debt.
If borrowers are struggling to make their credit card payments, they should contact their credit card companies to see if they can work out a payment plan. They may also want to seek help from a credit counseling agency.
As an effort to correct the imbalances that are driving these dire financial conditions, McCormick says Americans can get most of the way there simply by “reversing Reaganomics.”
The rise in credit card debt and delinquencies is a serious problem. However, there are steps that borrowers can take to avoid falling behind on their payments. By creating a budget, tracking their spending, and only using credit cards for purchases that they can afford to pay off in full, borrowers can manage their debt and avoid the negative consequences of delinquency.