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Why is America’s credit card default rate rising?

It’s the time of year when people’s holiday spending is coming back to haunt them. Credit card bills reflecting our purchases of gifts, decorations and holiday party supplies are hitting our email in-boxes and mailboxes.

Unfortunately, the S&P/Experian Consumer Credit Default Indices show that Americans’ credit card default rate is rising. Financial experts cite a few key reasons for this.

For one thing, financial institutions and other companies are increasingly giving credit cards and other types of credit to people who may not have the means to repay it. These are known as “subprime” borrowers.

Further, Americans have been feeling more optimistic about their financial situation and the economy in general. That caused many consumers to spend more this past holiday season than they had in the past.

The founder of one financial group also cites the age-old “keep[ing] up with the Joneses” mentality. He says that’s only been exacerbated by our access to social media. However, he notes, “The reality is, if your paycheck doesn’t support your spending, you’re going to default.”

Unfortunately, just as Americans are struggling to pay off their holiday credit card debt, they may be adding more as they begin to plan their spring break and summer vacations, graduation celebrations and June weddings. The Federal Reserve will also be raising interest rates this year, which will only increase the interest people are accumulating on unpaid balances.

Experts caution people to take control of their debt sooner rather than later. Even one missed payment can result in late fees and higher interest rates, not to mention what it can do to your credit score.

Many creditors are willing to work out a payment plan or even place a moratorium on interest charges for consumers who ask. It’s not in their best interest to send customers’ accounts to collection agencies. They’d rather get something than nothing. It may be wise to seek the guidance of a bankruptcy attorney or other professional who can help you determine how best to get your financial life back on track.

Source: Chicago Tribune, “Credit card defaults on the rise, and Chicago is worst, as holiday bills come due,” Samantha Bomkamp, Jan. 22, 2018

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