Recent credit card statistics indicate a not-so-good trend. Late payments and defaults are rising, and it’s not just credit cards. Car loan statistics are following similar trends. The trend indicates that money is tight for many households and that personal debt is rising.
In looking over the statistics just for Capital One, between 3.5% and 4% of account holders are either late or in default on accounts. This figure sounds small. Capital One also reports that around half of card holders pay off their balances monthly. Combining these two statistics means that closer to 1 in 14 card holders are either late or in default. The other large credit card issuers are reporting similar statistics.
One in fourteen card holders is closer to 7% or 7.5% of households. This figure hits much closer to home. It means multiple people within our sphere of influence are having trouble with debt. This amount of borrowers having trouble is rather alarming, and the trend is rising. There are a few obvious reasons for this trend. One is inflation, and another is rising interest rates. Within inflation, higher housing costs and more expensive vehicles are taking more of the average household’s monthly budget.
As for inflation, unless the rate of inflation turns negative, prices are not falling. True, some prices are stabilizing, but many prices remain higher. If prices rise 2% in one year, 5% the next, 8% the year after that, and then inflation falls back to 2%, the reduction in inflation does not mean prices have fallen. Prices are still rising; the change is that the rate of increase has slowed down.
In other words, as we start the new year, you shouldn’t expect prices to become more affordable. Instead, more deliberate financial planning is necessary to ensure your money stretches for what you need. As I have written before, the best methods to deal with inflation are to invest in yourself, reduce debt, and be intentional with spending.
Credit card interest will have a significant on household budgets this year, so carrying credit card balances should be avoided.
The best resolution you can achieve for the new year is to improve your income, set a plan to pay down debt, save all you can, and be disciplined with spending.
R. Joseph Ritter, Jr. CFP® EA is the Executive Director of Zacchaeus Financial Counseling, Inc., a 501(c)(3) non-profit organization based in Lake Junaluska, NC which specializes in tax services and financial counseling and planning for low and middle income households.