U.S. Credit Card Debt Hits Record High as Delinquency Rates Approach Subprime Crisis Levels

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The U.S. credit card debt reached a record high of $1.17 trillion in the third quarter of 2024, with the serious delinquency rate climbing further to 11.1%, according to data from the Federal Reserve Bank of New York. This level significantly surpasses the 9.98% peak witnessed during the pandemic and is approaching the figures recorded during the 2008 subprime mortgage crisis. Does this imply a weakening in U.S. consumer spending momentum or signal that economic deterioration may already be underway?

(Source: Federal Reserve Bank of New York, TrendForce)

 

Over the past few years, the post-pandemic reopening released a surge in global demand, which supply chains struggled to accommodate, resulting in soaring prices. The U.S. Consumer Price Index (CPI) experienced a historic peak not seen in over four decades. In response, the Federal Reserve began raising interest rates in March 2022 and initiated quantitative tightening a month and a half later to further restrict liquidity in financial markets and prevent economic overheating.

As of today, while inflation growth in the U.S. has almost returned to the Federal Reserve’s target range, the average price level remains 20-40% higher than pre-pandemic levels. This has led to worsening financial conditions, diminished consumer confidence, and greater financial strain on many American households in recent years.

While credit card debt has reached a record high, it still represents a relatively small portion of total U.S. household debt. According to data from the Federal Reserve Bank of New York, credit card loans account for only 6-9% of total household liabilities, with the largest share coming from mortgage debt, which comprises approximately 68-73%.

(Source: Federal Reserve Bank of New York, TrendForce)

 

This implies that a significant economic slowdown or downturn is more likely to occur in scenarios where real estate prices experience a sharp decline or consumers are unable to service their mortgage debt, potentially triggering what is known as a “balance sheet recession.”

Historical data shows that during the U.S. subprime crisis, the serious delinquency rate for credit card debt rose to 13.7%, roughly two percentage points higher than the current 11.3% level. However, at that time, the bursting of the housing bubble caused widespread mortgage defaults, with the mortgage delinquency rate soaring to 8.9%.

Currently, the serious delinquency rate for mortgages remains at a historically low 0.7%. This stability is largely attributable to the fact that nearly 90% of U.S. mortgages are on fixed rates, allowing many homeowners to lock in low rates from the pandemic period, shielding them from the recent rise in interest rates.

(Source: Federal Reserve Bank of New York, TrendForce)

 

Moreover, data on the credit scores of mortgage holders indicates that average scores exceed 750, reflecting significantly healthier financial and credit conditions than those observed before the financial crisis.

(Source: Federal Reserve Bank of New York, TrendForce)

 

In conclusion, we believe the risk of a broad economic downturn is limited. While credit card delinquency rates have reached historic highs, their impact on overall household debt is relatively minor. Rising credit card delinquencies more likely reflect the difficulties faced by lower-income or lower-credit-score populations in servicing debts amid elevated price levels.

The Federal Reserve’s recent research also points out that a significant portion of current retail sales growth is driven by higher-income groups. Looking ahead, as the Fed continues to cut rates, credit card interest rates (currently exceeding 20%) and delinquency rates are expected to decline, potentially boosting consumer demand.