Why Americans are so anxious about paying off their credit cards

Bankrate's Ted Rossmand joins TheStreet to explain why Americans are so anxious about their credit card payments.

Transcript

00:00So a recent Fed study showed that Americans are more anxious than ever before when it comes to

00:07making their credit card payments. What's driving this trend? Inflation and high interest rates have

00:13been a nasty combination. We're seeing record high credit card balances right now, according

00:18to the Fed, and rates that haven't backed off all that much. The average credit card rate is still

00:25at 20.5%. It's only down slightly from its peak a few months ago. There's a cumulative effect to

00:31all this. We're seeing more people financing daily essentials. People tend to get into credit

00:36card debt for practical reasons. Everything from day-to-day bills to one-offs like a medical bill

00:42or a car repair. It's not usually a vacation or a shopping spree. It's usually practical stuff,

00:48but it's hard to dig out with interest rates as high as they are.

00:51And what do you make of the data? When I looked at the data, it was the people in the peak

00:58earning years that were the most worried and people that were like over $150,000 a year.

01:06Those people, we consider that kind of high-income earners, yeah?

01:11It is kind of surprising. You could maybe say there's a bit of keeping up with the Joneses

01:15going on here, but I don't believe a lot of these people would view it that way. I think

01:20they would come back to just the rising cost of living. Yes, if somebody has an impressively high

01:25income on paper, they may say that evaporates pretty quickly. When you think about high housing

01:31costs, high childcare costs, high just-about-everything costs, especially expensive

01:37parts of the country along the coast, life is really expensive these days. That cumulative

01:43toll is important. We recently did a study. We found that the cumulative toll of inflation these

01:49past three years has been about 20 percent, and wages have only gone up 17 percent on average

01:54during that span. And it depends on the category, too. I mean, if we're talking something like

01:59insurance bills have really skyrocketed, childcare, higher education costs, it's becoming harder for

02:06people to pay these bills, and more are relying on credit to make ends meet. So are you actually

02:13seeing a follow-through? I know sometimes when we look at the Consumer Confidence and Consumer

02:18Sentiment Reports, people say one thing, but then when we get the Retail Sales Report, the numbers

02:23are up. So this survey said that people are anxious that they won't be able to make the

02:28credit card payment. Are you actually seeing the delinquency rate go up? Credit card delinquencies

02:36are at their highest point since 2011, and they've basically doubled in the past couple of years. So

02:41that does sound alarming. On the other hand, though, a lot of banks view this as normalization.

02:46After the pandemic weirdness, credit card balances and delinquencies fell a lot in 2020 and 21. And

02:53you know, yes, they've gone up a lot since then, but banks view this as kind of normalization,

02:58more or less. Now, I know you could say, well, 2019 was normal, and if we've blown past that,

03:03and we're back to 2011 levels, that is a bit alarming. Banks don't seem overly concerned

03:09in the aggregate. I would describe it more as pockets of trouble, you know, especially people

03:14with lower incomes, lower credit scores, they're certainly going to be more vulnerable. Credit is

03:19still flowing freely in general. It has gotten harder around the margins. You know, we have seen

03:25about a 15% drop in originations the past couple of years. So credit is still flowing freely if

03:31you have a hefty income and a good credit score. Those on the lower end of those spectrums are

03:37finding more difficulty.