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Millennials are struggling under mounting credit card debt, NY Fed finds

The resumption of student loan payments adds to younger borrowers' burden.

Millennials in their 30s sank deeper into credit card debt toward year-end, a new report found, as US credit card debt continued to climb to new heights.

Outstanding credit card balances hit a record high $1.13 trillion in the fourth quarter of 2023, according to new data released Tuesday from the Federal Reserve Bank of New York, up roughly 5% from $1.08 billion the previous quarter. At the same time, the 90-day delinquency rate measure for credit cardholders also jumped to 6.36%, up from 4.01% a year earlier.

While delinquencies have been climbing across age groups, the flow into serious delinquency was particularly acute among younger millennials between the ages of 30 and 39 and lower-income households, the New York Fed noted.

The data comes months after the federal student loan pause ended in October, a source of financial strain for many younger adults. Additionally, interest rates on credit cards remain at near 38-year highs, making it harder to pay off climbing debts, which tend to tick higher during the holiday season.

Read more: Credit card fees explained: 8 types you should know

"This signals increased financial stress, especially among younger and lower-income households," said Wilbert van der Klaauw, economic research adviser at the New York Fed.

Millennials struggle to keep up with payments

While serious credit card delinquencies increased across all age groups, notably younger borrowers continued to surpass prepandemic levels. Millennial credit card users, those born between 1980 and 1994, first began exceeding prepandemic delinquency levels in the middle of last year, the report found.

"Millennials stood out," New York Fed researchers told reporters. "Borrowers between the ages of 30 and 39 are slipping into delinquency at a faster pace compared to other age groups … it’s perplexing."

Americans ages 18 to 29 had the highest delinquency rates in the fourth quarter, according to the New York Fed. At least 10% were seriously delinquent — 90-plus days behind on payments. This was followed by 30-to-39-year-olds, who had delinquency rates of just under 9%.

By comparison, just over 6% of 40-to-49-year-olds slipped into serious delinquency levels in the fourth quarter.

Those with the least transition to delinquency were 60-to-69-year-olds, with approximately 4% falling over 90 days delinquent on credit card payments.

Read more: The best balance transfer credit cards with 0% APR

An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg, Getty Images)
An air traveler uses a credit card to pay for items at a retail shop in John F. Kennedy International Airport in New York City. (Credit: Robert Nickelsberg, Getty Images) (Robert Nickelsberg via Getty Images)

The sharp uptick in delinquencies among millennials could be due to federal student loan repayments, which resumed in October. According to a separate report from the New York Fed, nearly 23% of borrowers said they expected to miss a student loan payment.

Additionally, 39% of borrowers with incomes below $60,000 said they expected to miss a student loan payment, compared to 14% with incomes above that mark. Overall, about 12% of borrowers said they expected to miss a non-student debt payment once student debt repayment resumed.

"The resumption of student debt repayment can cause spillover effects on other debts," New York Fed researchers said. "Younger adults, millennials, also experienced a small recession. That could cause some disruption among those in early career stages."

Lower rates on credit cards may come soon

Interest rates, which rose steadily for over a year due to the Federal Reserve’s campaign to tamp down inflation, could be partially to blame for climbing delinquency rates.

Though the central bank decided to leave its benchmark interest rate unchanged last week, the range of 5.25% to 5.5% is still the highest since 2001. The Fed also noted that it won’t start lowering interest rates until there’s more confidence that inflation will level off sustainably at 2%.

"The Fed is being very cautious as it navigates the potential for future rate cuts," Jacob Channel, senior economist at LendingTree, said in an emailed statement. "While it doesn't want to leave rates high forever, it also doesn't want to cut them prematurely and risk inflation spiking again."

Read more: How does the Fed affect your credit card interest rate?

Still, even though the Fed may not be keen on lowering rates for a few months, there’s reason to believe that some card issuers may start softening interest rates sooner.

"The credit card marketplace is so crazy-competitive that it is probably only a matter of time before some issuers tinker with lowering rates on new card offers, even just a tiny bit, to try and attract new customers," said Matt Schulz, chief credit analyst at LendingTree.

According to LendingTree, the average APR on a new credit card stood at 24.59% in January. While high, it’s the first month since February 2022 in which a new card offer hasn’t registered a notable increase. That’s a promising sign.

Read more: Can you ask your credit card company for a lower APR?

Schulz added: "Folks with poor or thin credit likely won’t see the rates they’re offered fall anytime soon, but I do think that some issuers may get out in front of the Fed a bit in coming months to offer high-quality applicants slightly lower rates than they’ve seen in recent months."

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

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