When it comes to debt, U.S. households are doing well these days, with stable amounts of debt and low delinquencies in general.
But when it comes to credit cards, rising interest rates have started to pinch some households. The percentage of credit card debt that’s in delinquency has risen by about a percentage point from Q1 2017 to Q1 2018, to about 6%, according to numbers from the Federal Reserve.
According to analysts from Capital Economics, credit-card delinquency rates have stood out sharply against the rates on other forms of lending, which are either declining or flat.
Generally annual interest rates for credit-card debt are around 20%, far higher than other types of borrowing like mortgages or car and student loans. Furthermore, rates are often quickly adjusted following a rate hike, usually the following month. This means that credit-card debt is especially sensitive to moves made by the Fed.
“The flow into 90-plus day delinquency for credit-card balances has been increasing notably for the last year,” the New York Fed wrote in its recent report on household credit-card debt.
Still, Capital Economics notes that the total size of credit-card debt is around $800 billion in 2017, which is only one-tenth of the size of the mortgage-market debt in 2007.
“To be clear, even a sustained rise in credit-card delinquencies is not going to crash the economy,” the analyst report states. “But we are increasingly concerned that, with broader market interest rates now rising sharply too, the rise in credit-card delinquencies is a sign of things to come.”
For now, at least, household debt as a percentage of disposable income is stable and still at the post crisis low of around 90% — far below the 120% during the financial crisis.