Millennials are struggling with credit card debt, NY Fed study finds

Credit card debt surged again during the third quarter and so did the number of people missing payments.

Credit card balances rose by $48 billion in the third quarter to a record high of $1.08 trillion, according to data released Tuesday by the Federal Reserve Bank of New York. The $154 billion year-over-year gain in debt was the largest such increase since the beginning of the series in 1999. At the same time, the 90-day delinquency rate measure for credit cardholders increased to 5.78%, up from 3.69% a year earlier.

While rising delinquencies spanned incomes and regions, they were particularly acute among millennials and those with auto or student loans, the report found.

The data comes as the three-year federal student loan payment pause ended in October and interest rates on credit cards have increased to 38-year highs. The combination has been a blow to some borrowers saddled with credit card debt.

"Millennials have seen the largest increase in their delinquency rates and now have rates definitely above pre-pandemic levels," New York Fed researchers said in a press call. "Given the strong labor market and general economy these increases are somewhat surprising. Understanding the cause of this shift — whether they reflect loosening of standards over the past years or overextension — is something we intend to dig into and monitor."

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The share of newly delinquent borrowers grows

The youngest Americans are finding it harder to dig themselves out of credit card debt.

During the third quarter, some 2% of credit card users moved from current status in the second quarter to 30 or more days past due on at least one account in the third quarter. According to the New York Fed, that’s up from 1.6% in the first and second quarters of 2023, and higher than the third quarter average of 1.7% between 2015 and 2019 .

Those flowing into serious delinquency on credit card debt, which are 90 days or more past due on payments, posted the largest increases out of every debt category, the study found. Overall, the flow of debt moving into delinquency hit 1.28% in the third quarter, up from 0.94% a year ago, the report found.

The sharp uptick in delinquencies was driven by millennials — those born between 1980 and 1994. The group first began to exceed their pre-pandemic delinquency levels in the middle of last year and now have transition rates that are 0.4 percentage points higher than the third quarter of 2019.

On the other hand, the credit card delinquency rates for the Gen Z, Gen X, and baby boomers were still within pre-pandemic levels.

"There’s a lot of overlap between millennials and auto loans and student debt. Millennials have a fairly significant amount of student debt, and there’s a decent bit of new originations of auto loans during the pandemic when prices were high," New York Fed researchers said in a press call. "We can see that overlap correlates with higher delinquency rates."

Interest rates, which have risen in the last 18 months due to the Fed’s campaign to tamp down inflation, could also be partially to blame for the uptick in delinquencies. Higher costs of living and shelter costs have also caused borrowers to rely more on credit, with credit card balances rising for eight consecutive quarters, the study found.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

Jeff Taggart watches Amy Walters scan his credit card at Food truck vendors at Civic Center Park. (Credit: John Leyba, The Denver Post via Getty Images)
Jeff Taggart watches Amy Walters scan his credit card at a food truck at Civic Center Park. (Credit: John Leyba, The Denver Post via Getty Images) (John Leyba via Getty Images)

"Millennials have lower homeownership rates, they may be more exposed to increases in rents, which may be putting pressure on their balance sheets in other ways," the researchers said. "Boomers have very high homeownership rates at this point. So, in some ways, many of them may have benefited from refinancing during the pandemic and would see some reduction in their household financial obligations where renters won’t see those benefits that may come from homeownership."

"That’s something to look into down the road," the researchers added.

Lower-income households also hit hard

A deeper dive into credit card delinquencies revealed that borrowers in the lowest earning regions of the US were more likely to be behind on payments. The New York Fed categorized all ZIP codes in the US into four groups by area income, with the first quartile representing the lowest incomes and the fourth representing the highest.

"The South had the highest delinquency rates over the time series, but all regions have new credit card delinquency rates higher than their pre-pandemic averages and are evolving similarly," the researchers wrote in a blog post.

According to the report, those with combined balances over $20,000 had the highest transition into delinquency since 2022. But the share of borrowers carrying that amount in credit card debt was low at 6%. Meanwhile, 68% of credit card borrowers in the third quarter had balances under $5,000 and held delinquency rates similar to pre-pandemic levels.

Read more: How to find the best balance transfer credit cards

Customer uses self check out at grocery store. Despite credit card interest rates hovering above 20%, more Americans are relying on plastic to offset growing costs of food, Quicken Inc. found. (Credit: Getty Creative)
Customer uses self-checkout at a grocery store. (Credit: Getty Creative) (whyframestudio via Getty Images)

The flow into delinquency was the highest among folks that had both student and auto loans. According to a separate report by the New York Fed, some student loan borrowers already expected to have difficulty repaying their loans.

Read more: When is it OK to pay bills with a credit card?

For instance, some 22.6% of borrowers surveyed during the federal student loan pause said they expected to miss a student loan payment. Additionally, 39% of borrowers with incomes under $60,000 said they expected to miss a payment, compared to 14.3% with incomes above that threshold.

According to the New York Fed, this group’s flow into delinquency on credit cards was 0.6 percentage points higher than prior to the pandemic.

"These repayment difficulties will likely continue to mount for student loan borrowers now that student loan repayments have resumed," the researchers noted in the blog. "Whether this is a consequence of shifts in lending, overextension, or deeper economic distress associated with higher borrowing costs and price pressures is an important topic for further research."

Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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