Consumer Debt on the Rise use NCCI to be your Eyes

All Industries

Nov 30, 2023, 10:12 ET


Increasing Credit Card Debt and Risk Mitigation

Companies that lend money to consumers, whether that be for a new home, car or something else, tend to focus on the debt they are servicing, naturally. But for virtually all borrowers, that debt is only one among many that they are carrying.

Some of those debts are increasing, and that’s putting pressure on consumers to stay current. Servicers intent on mitigating the risk of delinquency or default, must take a broader look at their borrowers to assess this risk.

When they do that today, one red flag they see waving on the horizon is credit card debt.

An significant burden for American borrowers

According to the Federal Reserve Bank of New York, Americans’ total credit card balance rose to $1.079 trillion in the third quarter of 2023. That’s up from a record $1.031 trillion in the second quarter of 2023, leaving the balance the highest since the New York Fed began tracking in 1999, according to LendingTree’s coverage.

According to published reports, this marks the second consecutive quarter in which Americans’ credit card balances topped $1 trillion, which had never happened prior to the second quarter of 2023.

LendingTree pointed out that it also continues a trend of third-quarter credit card debt increases.

“With the exception of 2020, when the nation was in the depths of the COVID-19 pandemic, credit card debt hadn’t fallen during the third quarter of a year since 2011. That quarter was the last of 11 straight quarters — from Q1 2009 through Q3 2011 — to see a drop in credit card debt as the nation wrestled with the impact of the Great Recession.”

A burden that will likely get heavier

With this latest increase, credit card balances have risen by $223 billion since the fourth quarter of 2021, but we may not have seen the last of it. As reported by LendingTree, “However, thanks to record interest rates, stubborn inflation and myriad other economic factors, credit card balances are likely only going to climb, at least in the near future.”

According to the Government Accountability Office, the average APR for all credit cards in the third quarter of 2023 was 21.19%. For new credit card offers, the average is 24.56%, which the GAO said was the highest since it began tracking rates monthly in 2019.

The GAO’s report, which it released last month, showed that the vast majority of adults in the U.S. (82%) have at least one credit card in their wallets. In addition, while delinquencies among cardholders fell during the pandemic, when it is assumed that many used government stimulus checks to stay current, a post-pandemic return to normalcy has seen “a return of higher credit card use and, potentially, more cardholders slipping into debt.”

Another factor that will likely increase the burden is the return of student loan payments. They were paused in March 2020 because of the pandemic and did not return for nearly 4 years.

Now that student loan balances are again accruing interest, borrowers will need to resume their payments. That, according to a report on could “hurt lower-income borrowers who took federal student loans but didn't receive degrees, and it might also cut into spending by people who have advanced degrees and earn higher salaries.”

The best thing lenders can do now is continue to monitor their borrowers for any sign of a problem that could result in a delinquency and they have a good process in place for helping the borrower get back on track. For many, that will include a face-to-face visit, which is our specialty.

To find out how to affordably add this very effective loss mitigation technique into your existing delinquency process, reach out to us today.

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