Despite the wailing about tapped-out, struggling and cracking consumers, the credit card delinquency rate dropped to multi-year low.
By Wolf Richter for WOLF STREET.
The 30-day-plus delinquency rate on credit cards issued by all commercial banks declined to 2.94% at the end of Q4, seasonally adjusted (SA, red in the chart), the lowest since, and the same as, Q3 2023, and down from 3.08% a year ago, and from 3.10% two years ago, according to the Federal Reserve Tuesday afternoon, based on regulatory reports filed by all commercial banks. This includes credit cards by subprime-rated cardholders.
Not seasonally adjusted (NSA, blue in the chart), the 30-day delinquency rate, at 3.03%, was the lowest for any Q4 since Q4 2022.
During the Free-Money era, credit card delinquency rates had dropped to very low levels. But after the Free-Money fizzled, delinquency rates rose out of the trough, overshot a little, and then in 2024 started heading lower again. Throughout, delinquency rates remained relatively low compared to the 25-year context of the data.
Credit card balances: a measure of spending, not of borrowing.
Credit card balances are statement balances before payments are made. They’re a measure of spending, not a measure of borrowing. Most of these charges get paid off every month by due date and never accrue interest.
Credit cards have become the dominant consumer payments method in the US, largely replacing checks and cash. Debit cards are the second most popular payment method. That’s why watchers of the economy keep an eye on credit card balances: They indicate growth of consumer spending.
Credit card balances (red line in the chart below) rose by $69 billion year-over-year at the end of Q4, or by 5.7%, to $1.28 trillion, on growth in consumer spending and price increases (data from the New York Fed’s Household Debt and Credit report based on Equifax data).
This data is not seasonally adjusted. Typically, spending spikes during the holiday period and then drops in Q1. The data confirms that spending growth was solid.
“Other” consumer loans (blue line) – such as personal loans, Buy-Now-Pay-Later (BNPL) loans, and payday loans – inched up 1.1% year-over-year, far less than the rate of inflation, to $560 billion. Many of these balances, except current BNPL balances, accrue interest.
These other consumer loans have barely risen over the past 22 years, despite the growth of the population, income, inflation, and spending.
The declining and relatively low delinquency rates and the rising statement balances are not hard to explain.
Consumers are earning record amounts of income, and there is a record number of consumers, and they’re buying record amounts of goods and services via electronic means, dominated by credit cards.
Consumers’ aggregate balance sheet is in good shape: 65% own their own homes, and about 40% of these homeowners don’t have a mortgage, and others have whittled down their mortgages. Over 60% of households have at least some stocks. Many hold precious metals and cryptos. Many are sitting on a record pile of interest-earning cash.
The burden of credit card balances.
Credit card balances (red in the chart above) and “other” consumer debt (blue above) combined, rose year-over-year by $75 billion, or by 4.2%, to $1.84 trillion.
The debt-to-income ratio is one of the classic ways of evaluating the burden of a debt. With households, we can use the debt-to-disposable-income ratio.
Disposable income, released by the Bureau of Economic Analysis, is essentially the monthly after-tax income consumers have available to spend on a monthly basis for their daily costs of living, and to service their debts, and then to save and invest the rest. It’s income from after-tax wages, plus income from interest, dividends, rentals, farm income, small business income, transfer payments from the government, etc.
It excludes income from capital gains, which is where the super-wealthy make most of their money. So this upper echelon of income is excluded here.
The ratio of credit card and other consumer loan balances to disposable income in Q4, at 8.0%, was where it had been in Q4 2024 and in Q4 2023 and below the Q4s in the years before the pandemic. And it has come way down from the years before the Financial Crisis.
Available Credit rises to record.
Credit cards are very profitable for banks because of the swipe fees they earn on every purchase. So banks are trying aggressively to get people to set up new credit card accounts, and they incentivize people to use those cards by kicking back 1% or 2% or more in form of cash back, loyalty points, miles, etc., on the logic, “The more you spend, the more you make,” meaning, “The more you spend, the more we make.”
So the aggregate credit limit (blue in the chart below) rose to a record $5.4 trillion, outgrowing balances (red).
And the available unused credit has soared to a record $4.15 trillion (gray arrow).
Third-party collections hit record low.
This is where defaulted credit card accounts end up if the cardholders fail to catch up with their payments or make some kind of deal with their bank.
In terms of credit reporting, a third-party collection entry is made into a consumer’s credit history when the lender reports to the credit bureaus, such as Equifax, that it sold the delinquent credit card debt to a collection agency for cents on the dollar.
The percentage of consumers with third-party collection entries on their credit reports again hit the rock-bottom of 4.6% in Q4.
This rounds off my four-part quarterly analysis of consumer debt and credit. And in case you missed them:
Serious Delinquency Rates for Subprime & Prime Auto Loans, Balances, and Debt-to-Income Ratio in Q4 2025
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Who do you believe? Wolf Street or the MSM? Wolf digs deeper.
The post says: “Credit card balances are statement balances before payments are made. They’re a measure of spending, not a measure of borrowing. Most of these charges get paid off every month by due date and never accrue interest.”
Is it possible to translate “Most” into a % and, if so, is there a trend?
No one tracks interest-accruing credit card debts on a quarterly basis. This data would have to be obtained from each of the 4,000 banks. There are estimates floating around out there. And every five years, the Fed does a study on this, etc. The figure that has been floating around out there is now at about $650 billion in interest-accruing credit card debt, with everyone having a different estimate.
So let’s pencil this out on a napkin.
Credit card transactions are close to $6 trillion a year (last figure I have was for 2023, of $5.8 trillion). This means theoretically that if no one pays off their credit cards, credit card balances would grow by $6 trillion a year, every year, and would be in the high gazillions by now.
So if interest-accruing balances ($650 billion now) grow by $30 billion a year of the $6 trillion a year in credit card transactions, then cardholders pay off $5.97 trillion a year spread over 12 statement balances. And the remaining $30 billion spread over 12 statement balances gets stuck as interest accruing debt and gets added to the $650 billion in interest accruing debt balance.
The reason interest-accruing credit card debt is so low is because interest rates are so high. People buy new living furniture and borrow on their credit card, but then pay off the balance asap, motivated by the high interest rate. Young people have a learning curve in that department, but they figure it out very quickly. So that balance might jump to $10,000 after big purchases, and then five months later, it’s paid off. I did that in my younger years, everyone is doing that in their younger years when they need some long-lasting stuff, have good income, and don’t want to or can’t disrupt their investments.
Great four-part analysis – thanks!
I don’t dispute the data at all, in fact, am a case example of it. Just curious thought… I wonder how much of these low balances is because everyone has ‘stuff’. Specifically, during the pandemic, millions went out with their Covid dollars and bought a bunch of stuff. (Cool wheels, bro) Many / most probably still have it… i. e., not much need for the old school debt aspect of the credit card. Probably impossible to quantify, just more a random musing on the topic.
I don’t think it’s that. My theory is that it’s more that federal government spending is off the charts. The balance sheet of the American consumer is in superb shape because the balance sheets of corporate America and the federal government have added a lot to their liabilities.
Think about it. If startups burn investor cash (with borrowed money) and pay it out in salaries and bonuses to their employees, those employees are doing pretty well. Same with federal spending that ultimately ends up in consumer hands. Think of that on a national scale, and it’s easy to see why consumers are doing as well as they are.
I work somewhere that gets federal dollars periodically via grant applications mostly. The chick that runs the department that goes after the grant dollars just got a big promotion this week.
So, yeah I think you might be on to something. I like your theory better than my ‘stuff’ musings.
That’s why I’ve said for a long time that we won’t have a recession, or anything even close to it, as long as the federal government is running $1.7 trillion or whatever it is in yearly deficit AND for so long as BigTech makes hundreds of billions in profits due to their pricing power, and uses that free cash flow to invest in AI infrastructure. Put those together, and you have an enormous amount of spending and investment.
One has to crack before we get a recession.
The unclaimed credit card points are also very valuable to banks. I have heard from a contact inside a large bank that they are holding about $20 billion in unused credit-card points. These points are technically the property of the credit card holder, and the bank has to hold assets in reserve against them. However, until the points are used, the bank can invest the money and make a lot of interest – which goes to the bank, not the credit card holder. Even at 3%, the bank can collect $600 million a year on $20 billion – not bad.
Unclaimed credit points fall into the same category as the card payment. It becomes an ACH to my bank where I use to pay other debts/costs. Don’t begrudge the bank for making a profit.
Something pops up in these charts just as it has in Wolf’s other charts. In late 2021 government began cutting back on the free money. Card balances shortly there after began to rise. Government had changed and renewed the free money and inflation began. So we started a new cycle!
I think we may be into a reduction of deficient spending. If a recession is on the horizon I can’t say. Everyone of the pessimists on this site has also suggested this.
My mom’s husbands wife told me that the consumer is struggling and she can’t find broccoli and beans
The credit card companies make a ton of money, but I also make money by swiping. I make as many of my normal monthly purchases as possible on it to get money back, and definitely any big purchases.
All good as long as long as I keep zero balance.
Try to make my money work for me any way I can.
PS… thanks for the article Wolf. No immanent economic doom today.
All five of my credit cards are closed as of early last year. Probably will never have another. If I can’t afford it I simply don’t need it.