The US economy has been on
recession watch for months Now, and so far the all
important American Consumer has been holding
strong. Keeping those recession
forecasts from becoming True. Consumer is still
spending. Consumer is in better
shape. If they have money, They're going to spend
it. Consumers continuing to be
resilient. The consumer health has
been resilient so far this Year. Consumer resilience is
about to be tested. Americans now carry more
than $1 trillion in credit Card debt going into the
holiday shopping season. The Federal Reserve's
rate hikes have caused Average interest rates
for credit cards to spike To more than 22%. Rates on retail credit
cards are even higher, Nearing 29% on average. Despite this, the holiday
season shows no signs of a Slowdown as each shopper
is prepared to spend Almost $900 on average
this year, according to an NRF survey. The US. Consumers walking towards
a cliff, basically. The state of the consumer,
will be in focus in the Post holiday season, as
economists will want to Know, can American
consumers handle racking Up a record amount of
credit card debt, and if It will lead into more
delinquencies? This is the first time
credit card debt has Topped $1 trillion in
America. That amount includes both
revolving balances and Balances paid off at the
end of the billing cycle. Consumers are increasingly
reliant on credit cards to
Finance purchases of
everyday goods and Services, and that's
because they're just Getting a lot more
expensive. At the same Time, their wages are not
increasing at the same Pace as inflation, and
that makes it more Difficult because as the
credit card balance Increases, it can be more
challenging for consumers To pay down that debt. The excess savings that
Americans line their Pockets with during the
Covid 19 pandemic is Largely now spent. High inflation and
interest rates have made Everything more
expensive. Normal costs Like groceries, gas and
housing are all rising. Add in the resumption of
student loan repayments And it's creating the
perfect rising debt storm. Americans are skipping out
on some of their credit Card payments because
household budgets are Squeezed due to higher
borrowing costs. Another factor for the
rising debt is the Increase of credit card
users. More than 70 million new
accounts have been opened Since 2019. That year, 65% of
Americans owned a credit Card, and after a
contraction in issuance Due to the pandemic, the
amount of Americans owning A credit card rose to 69%
in 2023. Credit cards can be like
power tools. They could be really
useful, or they could be Dangerous. It's all about
how you use them. Typically, after the
holiday season, credit Card debt levels drop as
consumers pay down their Shopping balances. But at the start of 2023,
it remained unchanged, and
Now shoppers are prepared
to spend even more than 2022. Holiday shoppers do plan
to spend more. According to a survey and
the forecasts done by the National Retail
Federation, they found That people plan to spend
about $40 more than they Did last year, and that
could be in part because Of higher prices in some
categories. There is still this deal
seeking mentality for Items, and so that may
mean that people are going To look for whatever is
on sale, along with Seeking newness. Americans planning to
flood the mall with their Retail credit cards may
be shocked when the bill Comes, because those
cards are carrying a Higher interest rate than
years prior. In fact, some are
starting to rise to rates That only subprime
borrowers see rates Exceeding 33%. Some retailers have
already noticed is that Credit card delinquencies
have ticked up, and that May mean that people are
struggling to make Payments and could again
be a warning sign. Big box retailers like
Macy's and Nordstrom Already flagged a
slowdown of repayments on Their credit cards over
the summer, showcasing a Potential risk to retail
revenue this season. The average consumer has
around a $6,000 credit Card balance, 4 to $600
monthly student loan Payment, high rent and
car loan payments. Americans may wonder if
it's even possible to keep Their heads afloat. As a tip for credit card
debt payoff actually is to Get a 0% balance transfer
card, so you move your
Existing high cost debt
to this new card with a 0% Promotional rate. Credit card balances saw
the largest increase of All debt types this year,
$45 billion. And compared to other
debt types, credit cards Typically hold the
highest interest rates. Any extra money should
probably go to the credit Card, just because that's
likely to be your highest Cost debt by a wide
margin. A boon for consumers may
come from Congress capping Credit Card Interest
Rates Act. If passed, the bill would
cap Apr for credit cards At 18%. Prevent credit card
companies from imposing New fees to evade the
cap, and impose penalties On credit card companies
that violate the cap. But all eyes are still on
the fed. We're not really sure
where the Federal Reserve Is going to be taking
interest rates next. If they continue to hike
rates, it could be more Difficult for borrowers
to pay down the debt. If they reduce interest
rates, however, it will Take some pressure off
consumers and they might Be able to start making
more consistent payments And reduce those
delinquency rates.
