High prices and high-interest rates are hurting vulnerable consumers.
Subprime consumers are falling behind on their credit-card bills. From Generation Z and millennials to Generation X and baby boomers, credit-card delinquency rates have been trending upwards for four generations of borrowers since January 2020, reaching a new high in August, according to new data from VantageScore.
The Fed focuses on delinquencies where borrowers have fallen past due 30 days or more. It defines large banks as those with $300 million or more in assets, while smaller banks are those outside of the largest 100 commercial banks. More than 80% of U.S. consumers had credit cards last year, with nearly half carrying a balance, according to Federal Reserve data.
With a 24% average APR on credit cards, falling behind could push those lower-income workers into bankruptcy, Gill said. “It’s a very dangerous situation currently, especially for low-wage workers.” What’s worse, consumers could end up paying late-payment fees of up to $35 per month if they default on their payments, and an APR of up to 30%, according to LendingTree.
“Wages are not increasing at the same rate as inflation,” Gill said. “People want to have the same standard of living. They want to buy the same food, but it’s impossible as their wages are still low, so they’re using their credit cards. That’s OK for the short term, but at the end of the day, you have to pay off the debt.
Lenders, including credit-card issuers, are now tightening their lending standards, and this tends to be felt most by subprime consumers, Rossman added. As a result, they are more likely to turn to alternative avenues of credit, such as borrowing from friends and family and using fintech apps to request advances on their future paychecks to cover basic living expenses, he added.If all of this sounds familiar, it’s because we’ve been here before.
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