Credit Card Defaults Surge to 14-Year High

Credit card defaults are at their highest level since 2010 as consumers feel increasingly stretched.

As the Financial Times (FT) reported Sunday (Dec. 29), card lenders wrote off $46 billion in seriously delinquent loans in the first nine months of this year, a 50% jump over 2023. That’s the highest level in 14 years, the report said, citing industry data compiled by BankRegData.

These write-offs, the report notes, happen when lenders conclude it’s unlikely a borrower will repay their debts, and are considered a measure of major loan distress.

“High-income households are fine, but the bottom third of U.S. consumers are tapped out,” said Mark Zandi, the head of Moody’s Analytics. “Their savings rate right now is zero.”

The FT points out that this steep increase in defaults indicates the financial pressures facing consumers after years of elevated inflation and higher borrowing costs.

While banks still haven’t released fourth-quarter earnings, the report adds, there are early signs that more consumers are falling behind. For example, Capital One said recently that its annualized credit card write-off rate, the percentage of its overall loans considered unrecoverable, hit 6.1%, up from 5.2% a year ago.

“Consumer spending power has been diminished,” Odysseas Papadimitriou, head of consumer credit research firm WalletHub, told the FT.

As covered here earlier this month, the share of consumers carrying at least some card debt is pervasive, at 74.5%, per PYMNTS Intelligence research. While that percentage is more or less static across income levels, it leaps to more than 90% for consumers living paycheck to paycheck and having trouble paying their bills.

The research showed that the average outstanding balance among paycheck-to-paycheck cardholders who have issues paying their bills is $7,038, compared to those who live paycheck to paycheck without such difficulties, who had average outstanding balances of $5,766.

Among financially stable cardholders, that average drops to $3,202. The research also showed that roughly 40% of struggling consumers reached their limits with some regularity.

Meanwhile, recent Federal Reserve data shows U.S. credit card debt continuing to climb, reaching $5.113 trillion in October, compared to $5.093 trillion in September.

And data in November from the The Credit Access Survey released by the Federal Reserve Bank of New York showed that consumers were having more difficulty accessing credit for auto loans and mortgages, especially for consumers with low credit scores.

“Reported rejection rates for credit cards, mortgages, auto loans, credit card limit extension applications and mortgage loan refinance applications all rose in 2024,” the New York Fed said in a press release that accompanied the data.