This week, an interesting piece of consumer finance news highlighted a growing divide in how people use their credit cards. The latest quarterly report from the Philadelphia Fed provided the most apparent evidence of this shift: a record percentage of credit card holders are making only minimum payments, while on the other hand, a sizable share is paying off their balances in full every month. This report draws on portfolios representing about 80% of total bank credit card lending, offering a broad view of credit card use in the U.S.
A Record High for Minimum Payments
According to the data, the share of cardholders making only the minimum payment has climbed to almost 11%, the highest level since at least 2012 (when the data originated). Making minimum payments is often a signal of financial stress—when household budgets are tight, and people sometimes cannot pay more than the required minimum. With inflation still hitting everyday costs and interest rates remaining elevated, it is clear some households do not have much wiggle room in their monthly budgets to pay down debts more aggressively.
More Full-Pay Cardholders Than Pre-Pandemic
Interestingly, even as more people only make the minimum payment, a large and stable group of cardholders pay their complete statement balance every month. In fact, the proportion of these “full-pay” customers remains well above pre-pandemic levels. This could reflect a shift in consumer behavior, likely driven by the fact that credit card interest rates remain at all-time highs, in the low 20% range. This is about 50% higher than the pre-pandemic levels, which means the benefit of paying off the entire balance is much greater than it used to be.
A Widening Divide in Credit Use
The Philadelphia Fed’s report underscores a growing polarization in credit card use. On one end, you have consumers who avoid carrying a balance—paying off every month and steering clear of interest and late fees. On the other, there’s a segment of consumers caught in a cycle of high-interest debt, able only to chip away at balances with the minimum payment. For these individuals, credit card balances can quickly become a severe financial burden, especially as interest accumulates and monthly interest rates inch upward.
Why This Matters
- Household Financial Health: Credit card debt can be a significant source of stress and financial insecurity. As minimum payments grow more widespread, the risk of delinquency or default can rise—particularly if the economy cools or job growth slows.
- Interest Rate Impact: With interest rates still higher than a few years ago, carrying a balance becomes more expensive. Paying interest fees reduces disposable income, which could impact consumer spending power.
- Economic Signals: Credit trends often serve as a bellwether for consumer confidence and economic health. Rising credit card balances and a spike in minimum payments can be early warning signs of broader economic challenges.
Tips to Stay on Top of Credit Card Debt
- Pay More than the Minimum: Even an extra $20–$50 per month toward your balance can significantly reduce your total interest paid over time.
- Create a Repayment Plan: List your debts, organize them by interest rate, and tackle the highest-rate balances first. Or go after the smallest balances to stay motivated.
- Review Your Spending: It’s easy to slip into overspending in times of high prices. Regularly track your expenses to see where to cut back and reallocate that money toward debt repayment.
- Consider Balance Transfers: If you have decent credit, a balance transfer to a 0% APR card—often for 12–18 months—can give you breathing room to pay down debt without accruing as much interest.
- Build (or Maintain) an Emergency Fund: Even if you can only save a little each month, having a cushion can prevent reliance on credit cards for unforeseen expenses.
Looking Ahead
The development of this trend will be interesting to see over time. If more households drift toward only paying the minimum, credit card debt could rise even further, leading to potential challenges for consumers and lenders. Conversely, if the economic environment improves, more people may regain the financial flexibility to pay more than the minimum or pay in full each month.
For now, the Philadelphia Fed’s findings serve as a reminder that credit card use is far from uniform. While some consumers have been able to leverage credit responsibly—earning rewards and paying their balance in full—others are inching closer to higher debt loads and the possibility of financial stress. If you’re currently carrying a credit card balance, it may be a good time to evaluate your spending and payment strategy. A little diligence now can pay off with greater financial security down the road.
Markets / Economy
- Equity markets moved higher, with the S&P up 1.7%, the Nasdaq was 1.7%, and the small-cap Russell 2000 up 1.4%.
- The S&P Global U.S. Services PMI fell to 52.8 in January from 56.8 in the previous month, missing market expectations of 56.5 to mark the softest pace of expansion since April of last year, according to a flash estimate.
Stocks
- U.S. equities were in positive territory. Communication Services and Healthcare were the top performers, while Energy and Consumer Discretionary lagged. Growth stocks led value stocks, and large caps beat small caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased two basis points to 4.63% during the week.
- Global bond markets were in positive territory this week.
- Corporate bonds led for the week, followed by high-yield bonds and government bonds.
