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Nearly 1 out of 5 credit card users have maxed out on their borrowing

MICHEL MARTIN, HOST:

Nearly 1 out of 5 credit card users has maxed out on their borrowing.

STEVE INSKEEP, HOST:

That's according to the Federal Reserve Bank of New York, which says more people are falling behind on their monthly bills for credit cards. It's one sign of the financial stress that comes after years of rising prices and high interest rates.

MARTIN: NPR's Scott Horsley is with us now to tell us more about this. Good morning, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Michel.

MARTIN: So who is most at risk of being unable to pay their credit card bill?

HORSLEY: According to the New York Fed, people under 30, as well as lower-income families, are the most likely to be maxed out. And that means they're at greater risk of missing a payment. Nearly 1 out of 6 Gen Z credit card users are at or close to their credit limit, and that's compared to just 1 in 20 baby boomers. Of course, baby boomers also typically have higher credit limits, but they're also generally less dependent on borrowed money to cover their everyday expenses. Renters have also seen a bigger jump in monthly debt payments than homeowners have. Charlie Wise, who's a senior vice president at the credit reporting company TransUnion, says it's really kind of a mixed picture.

CHARLIE WISE: Consumers are keeping their head above water. But there are a lot of pockets of consumers - renters, people that maybe are in industries that haven't benefited from some of the wage gains we've seen - that are struggling, are falling behind.

HORSLEY: Wise says even in good economic times, some people wrestle with what he calls their own private recessions. Of course, one concern is if people are falling behind on credit card payments now when unemployment is under 4%, what might happen if the job market were to weaken?

MARTIN: Yeah. That's an interesting sort of question since unemployment is so low. So why are people running up these big credit card debts?

HORSLEY: Clearly, one factor is inflation. When the cost of rent and gasoline and car insurance goes up, it's harder to balance the household budget every month. And increasingly, people turn to credit cards to help close that gap. Overall, credit card debt was a little over a trillion dollars in the first quarter, 13% higher than last year. What's unfortunate, according to Ted Rossman of Bankrate, is that with today's high interest rates, credit card debt is a very costly form of borrowing.

TED ROSSMAN: Credit card balances are near record highs. Credit card rates are near record highs. There's a cumulative effect to all of this. I mean, if you make minimum payments towards the average credit card balance at the average rate, you could be in debt for nearly two decades.

HORSLEY: On the other hand, more than half of all credit card users pay their balance off in full every month. They're not affected by those high interest rates. The challenge is because those folks who pay every month are insulated from the high cost of credit card debt, there's no real reason for them to cut back on spending. And so long as spending stays high, it's harder to get inflation under control.

MARTIN: OK. So that brings us back to interest rates. So what does it take to get interest rates down so maybe credit cards won't be quite so expensive?

HORSLEY: In a word, patience. Most investors now think it's going to be September before the Federal Reserve is ready to start cutting interest rates. Inflation has come down a lot from where it was a couple of years ago, but prices are still climbing faster than most of us would like. And Fed chairman Jerome Powell said yesterday he understands how frustrating that is.

JEROME POWELL: You tell people inflation is coming down, and they think, I don't understand that; you know, the price of all of the things that I buy hasn't come down. They're not wrong. I mean, they're suffering. Particularly people at the lower end of the income spectrum are very hard-hit by inflation from the start, which is why we're so strongly committed to restoring price stability and keeping it in place.

HORSLEY: Now, we're going to get an update on the April inflation rate a little bit later today. Powell said yesterday he does believe that inflation will continue to cool off this year. But after a few hot readings in the early months of the year, he's not as confident about that as he was. So the Federal Reserve is going to be cautious about lowering interest rates. And that likely means we're in for another summer of high-cost credit card bills.

MARTIN: That is NPR's Scott Horsley. Scott, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Michel Martin is the weekend host of All Things Considered, where she draws on her deep reporting and interviewing experience to dig in to the week's news. Outside the studio, she has also hosted "Michel Martin: Going There," an ambitious live event series in collaboration with Member Stations.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.