New York Fed Data: Credit-Card Balances Mount as Delinquencies Stay Elevated for Two Years

On August 11, the New York Fed released its second-quarter household debt report. Credit-card balances reached $1.26 trillion, approaching the historical record. New delinquencies on credit cards and auto loans had remained elevated for two consecutive years.

Two Measures of Delinquency Need to Be Distinguished

The share of balances delinquent for 90 days or more rose from 7.6% in 2022 to 12.8%. The New York Fed explains that charged-off debt now remains on the books for almost twice as long: in 2004, only about 40% had stayed on the books for a year, compared with 80% today. The increase in the outstanding stock therefore reflects more legacy bad debt, rather than a rapid deterioration in current risk. By contrast, the New York Fed pays closer attention to the flow into delinquency. The rates for credit cards and auto loans were 6.97% and 3.0%, respectively. Both had remained steady for two years, but were significantly above their pre-pandemic levels, prompting the official recommendation for continued monitoring.

The Underlying Reasons Delinquencies Remain High

Three forces continue to squeeze households' ability to repay.

First, the excess savings accumulated during the pandemic have been exhausted. The saving rate has fallen from its pandemic peak of 33% to 3.0%, leaving cash buffers depleted.

Second, prices keep rising. July PCE inflation was 3.7% year on year, eroding gains in household income.

Third, credit-card interest is high, and debt compounds faster than prices rise. When income cannot cover everyday spending, households keep borrowing. New debt is added before old debt is paid off, making it difficult for delinquencies to decline.

Debt Pressure Is Unevenly Distributed

The pressure is not evenly spread, but follows a K-shaped pattern. High-income households continue to save and invest. Lower-income households, whose incomes cannot keep pace with inflation, rely on credit cards to meet everyday expenses and are the first to fall behind on payments.

More than 23 million Americans still have charged-off credit-card debt on their credit reports. Mortgages remain broadly stable; this is not a systemic crisis triggered by housing loans in the manner of 2008.

Why Tracking Delinquencies Matters

Although delinquency is a lagging indicator, it creates a chain of transmission: more missed payments lead banks to tighten lending, reduce credit limits or close card accounts, which then reduces households' credit-financed consumption.

Consumption accounts for about two-thirds of U.S. GDP. Weaker spending would weigh on business revenues and could in turn lead to layoffs. The Fed's continued monitoring is intended to prevent this chain from gathering force.

Three Key Signals to Watch Next

1. Whether new delinquency rates break out of their two-year plateau. A credit-card delinquency rate that stays above 7% would be a warning signal.

2. Whether total credit-card balances exceed their historical high of $1.28 trillion.

3. Whether the saving rate recovers above 4%.

Two years without a fall in delinquency rates suggest that borrowing new money to service old debt has become routine. If this continues, interest burdens will compound. The debt will eventually have to be repaid.