Credit Card Debt Hits $1.26 Trillion, Consumers Under Pressure

Consumers are racking up a near record level of credit card debt with $1.26 trillion yet to be paid off.

All this debt comes as the US personal savings rate hit 2.7% in June, and this is below the historical average, driven by high living costs as well as inflation and everyday consumer expenses.

And meanwhile key retail earnings last week showing that consumers are looking to save.

Home Depot benefited from low cost to yourself projects while TJXM rosters saw solid comp sale growth because of consumers attraction to the off value sector.

Well joining me this morning to weigh in.

Founder and CEO of Method Financial, Nick, good morning.

Thank you so much for joining us.

So first and foremost, uh, New York Fed data showing that credit card debt for Americans hitting 1.26 trillion in Q2 this year.

But what does your data tell you about credit stress, especially when it comes to the younger consumers out there?

Absolutely.

And thanks for having me this morning.

So, looking at method sample of more than half a million cardholders that we've connected through our platform, we are seeing about 70% of 18 to 24 year olds carrying card balance month to month.

And this is significantly elevated, uh, from other generations.

They are about 25% less likely than a consumer over 65 to pay their card in full each month.

Also, these may not be the ones maxing out their cards.

That's still far common between the people of ages, uh, 45 to 54, but persistent revolving debt at this age is a clear warning sign.

And especially balances on cards per person are only growing as someone gets older, and someone in their 50s is about carrying 4 times the balance that someone's carrying.

In their twenties.

So, uh, we're absolutely seeing this in our data, and, and as, uh, as consumer debts at an all-time high, credit card utilization is also, uh, significantly picking up.

And there are a lot of moving parts when we're sifting through the data points here.

So I do want to get your perspective when it comes to delinquencies which have also jumped over 5%, and that may be attributed to older outstanding debts rather than new ones.

But how are Americans actually utilizing their credit cards?

Yeah.

We are seeing credit utilization being fairly stable across the last 6 months, but there's a clear bifurcation between, uh, different ends of the market.

Uh, about 25% of the cardholders carry no balance.

But at any given time, there's a significant amount of American cards that are very heavily utilized and approaching their limit, which can put strain on consumers without managing payments and accruing interest.

So, I mean, just a few kind of key stats that we've seen in our data is about 20% of cards are using more.

Uh, then half their credit limit.

1 in 10 US cards is effectively maxed out, and about 5% are delinquent or slightly above their credit limit, which tends to happen when they're accruing fees and charges.

So, uh, At an aggregate level, it's, it's fairly stable, but, uh, at the end, we are seeing, uh, different kinds of behavior, uh, popping out.

Yes, and I do want to get your take on credit rejection here.

So what is real-time credit data and does it actually provide more opportunities for Americans applying for credit?

Absolutely.

Uh, uh, real-time connectivity is relatively new.

I think over the last 5, 10 years, uh, open banking regulations have made, uh, it easy for consumers to connect to their financial accounts, uh, at the time of underwriting, getting financial products or even personal financial management services.

So, method effectively comes out of this ecosystem, makes this data available to other businesses who are serving the end consumers with just their phone number and consent.

And a company can connect all of the users' uh, liabilities from their loans to credit cards when they're signing up for a product and give them the choice of which ones to connect.

Um, and Method has built this rails effectively connecting to about 20,000 financial institutions and working with a number of, uh, other data providers such as the credit bureaus and card networks.

So, this real-time connectivity is allowing a lot of real-time data to be brought into the time.

Of a loan or a card that helps identify as we're talking about these different tales, uh, about, we see 5% of the consumers carrying more than 3x their stated debt on the, uh, bureau files, and about 5% of the population effectively is just, uh, transacting on their debt and not revolving.

That kind of help, uh, prices risk, uh, better for even lenders out there.

Yes, and finally, before I let you go, I do want to ask you about how methods data is actually sourced and what it actually tells you about consumer health, especially in this economy right now, because compared to pre-pandemic, we know that some places you go to and utilize credit cards, there are also surcharges out there.

So what are you seeing out there?

Yeah, absolutely.

So, uh, as, as I was kind of saying, method is connecting to, uh, the consumer's accounts, effectively using the consent, identifying where they have accounts, and once the consumer selects the accounts in which financial institution to go to, for example, uh, your card at your Chase Bank or Bank of America method effectively acts as the agent of the end user and gets, uh, their accounts connected. to pull the relevant data, but also make payments to the bills very seamlessly for the end user.

And in terms of, uh, underwriting, as you kind of alluded to, some data points that we are seeing is about 40% of all trade lines on card reports are a month old.

And this is where our real-time connectivity kind of helps, uh, prices for much better and, and help with the underwriting, uh, that the lenders could use.

Well, Mitt, we will have to leave it there for today.

Thank you so much for joining us today and thank you so much for sharing all of your insights.

Thanks for having me, Roy.