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Rising Credit Card Delinquencies: Actionable Steps for Those at Risk

Delinquent credit card debt has surged to its highest level in over a decade, with individuals aged 35 and under facing particular challenges in meeting payment obligations. According to the Federal Reserve Bank of New York, the share of credit card debt classified as severely delinquent, exceeding 90 days overdue, reached 10.7% in the first quarter of 2024, up from 8.2% a year ago.

What to Do if You’re at Risk of Delinquency

Seek Help from Nonprofit Credit Counselors: Bruce McClary of the National Foundation for Credit Counseling advises those at risk of delinquency to seek assistance from nonprofit credit counselors. These counselors can provide free consultations and offer guidance on creating debt management plans tailored to individual circumstances.

Negotiate with Creditors: Martin Lynch, president of the Financial Counseling Association of America, recommends contacting credit card companies directly to negotiate interest rates, fees, and payment plans. Most companies have hardship programs available and may offer flexibility to borrowers facing financial difficulties.

Reasons Behind the Increase in Delinquencies

Several factors contribute to the rise in delinquencies, including:

High Interest Rates: The average annual interest rate on new credit cards is 24.71%, the highest in recent years. This is due in part to the Federal Reserve’s decision to raise interest rates to combat inflation.

End of Pandemic-Era Aid: Pandemic-related aid, such as stimulus payments and increased unemployment benefits, has ended, putting financial strain on consumers, especially those with lower incomes.

Rent Increases: Rising rents have eroded savings, making it harder for consumers to meet their financial obligations.

Advice for Borrowers

Stay Informed: Silvio Tavares, CEO of VantageScore, advises borrowers to know their credit score and stay current on payments to avoid additional interest charges.

Avoid Over-Extending: Tavares warns against over-extending with “buy now, pay later” loans, which can lead to financial stress and increased debt.

Concerns Over Future Outlook

While credit card delinquencies currently represent a relatively small portion of overall consumer debt, there are concerns that the trend may worsen, particularly if the economy deteriorates further. McClary suggests that many consumers may be teetering on the edge of delinquency, making them vulnerable to economic downturns.

In addition to increasing credit card delinquencies, retail spending has stagnated, indicating potential challenges ahead for consumer spending and economic recovery.

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