Consumers Are Hurting, Continue To Rack Up Credit Card Debt

American Consumers Continue to Rack Up Debt

American consumers are continuing to rack up debt: Overall consumer credit increased at an annual rate of 2.1%, according to the latest tally from the Federal Reserve. Even after the Fed’s long-awaited rate cut, high interest rates on those credit cards have barely budged. That could be troubling as we head into the holiday shopping season. American consumers made a big dent in our collective debt early in the pandemic. Then, around mid-2021, we started running the tab right back up, to a record $1.14 trillion in credit card debt by the second quarter of this year. “It’s just the rising costs of everything,” said Christie Matherne, who covers credit cards for WalletHub. [Marketplace]

Carrying a Credit Card Balance Has Gotten Way More Expensive

Americans can’t remember a time when it cost as much to carry a credit card balance. Banks have been raising interest rates on credit cards for years, and some are lifting them higher still to recoup the revenue they fear losing from a new cap on late fees. That means cardholders struggling to pay their bills might not see much relief, if any, even with the Federal Reserve expected to continue lowering rates. [The Wall Street Journal]

Why Are Credit Card Interest Rates Still So High Right Now?

Credit card debt is a growing issue nationwide, with the total amount of card debt in the U.S. recently surpassing $1.14 trillion, a record high. While there are numerous factors driving the trend, inflation has been one of the more impactful. Inflation has cooled significantly over the last few months, but cardholders continue to face high prices on food, housing and other essentials. In turn, more people are having to rely on credit cards to cover their daily expenses, leading to a cycle of accumulating debt. Another major contributor to this growing debt crisis is the fact that credit card interest rates are exceptionally high at an average of nearly 23% currently. And while the Federal Reserve cut its benchmark rate by 50 basis points in late September, which caused rates to fall on many loan products, credit card rates have barely budged in the time since. This discrepancy has left many wondering why rates on things like mortgages and home equity loans have decreased while credit card rates remain stubbornly elevated. [CBS News]

70% of Shoppers Say Payment Options Influence Where They Shop Online

Retailers continue to grapple with shopping cart abandonment. The availability of preferred payment methods is a critical factor in consumers’ online shopping decisions. According to a new report, 70% of consumers consider the availability of their preferred payment method to be very or extremely influential when choosing an online store. This preference appears to be a driver of cart abandonment rates across online platforms. Online marketplaces seem to have a competitive edge in this area. The study found that 53% of shoppers believe online marketplaces are the best at offering their preferred payment methods. In contrast, only 22% of consumers hold the same view about brand websites. This disparity may explain why brand websites experience higher cart abandonment rates, with an average of eight abandonments in the last 30 days compared to six on retailers’ sites and seven on online marketplaces. The data suggests that expanding payment options could be a strategy for reducing cart abandonment, especially for brand websites. [PYMNTS]

Who Are Buy Now, Pay Later Borrowers, and What Are They Buying?

71% of BNPL users also had credit card debt in 2023, according to the Federal Reserve Bank of Boston. Afterpay reported that 96% of customers paid all of their installments on time during the fourth quarter of 2023, while Klarna reported that 96% of its pay-in-four users in 2023 paid off their bills early or on time. The CFPB in 2022 reported that most BNPL users who also had revolving balances on at least one credit card had credit scores that were subprime (between 580 and 619) or near prime (between 620 and 659). For shoppers considered Generation X, Millennials and Generation Z, or those under age 60, clothes were the most popular BNPL purchases last year, while more Baby Boomers used BNPL to purchase furniture. The CFPB found that BNPL usage for everyday purchases like groceries, gas and utilities was up 434% in 2022 from 2020 as consumers faced rising prices. [Reuters]

Sam’s Club Opening Cashierless Store

A soon-to-open Sam’s Club store will eliminate fixed checkout in favor of app-based shopping and payment. Sam’s Club is opening a pilot store in Grapevine, Tex. (part of the Dallas metroplex) in mid-October that will be the Walmart-owned warehouse club retailer’s first full-time frictionless store. Customers will shop and pay for purchases using Scan & Go, a feature of the Sam’s Club app which allows members shopping in-store to use their mobile devices to scan items as they shop, complete payment and skip the checkout line entirely. [Chain Store Age]

Citi, Mastercard Team Up on Cross-Border Debit Card Payments

Mastercard and Citigroup are collaborating to facilitate around-the-clock, cross-border payments with debit cards, giving consumers and companies another way to conduct business worldwide. Citigroup is the first global bank to use the service, known as Mastercard Move, which will allow users to make transactions such as insurance payouts, airline refunds and e-commerce payments. [Bloomberg]

Three Ways to Manage Kids with Credit Cards

For many parents, it is a familiar, sinking feeling: Adding your kid as an authorized user to your debit or credit card, and then seeing a surprise purchase pop up on your statement. 59% of parents gave a child permission to use their credit or debit card, according to a LendingTree survey. But here is the fallout: 31% end up regretting it. Unauthorized purchases surprised 22% of parents, according to the LendingTree survey, most often because of a saved card on an app or website, which makes one-click buying extremely easy. Here are a few guidelines to teach your kids to use credit cards wisely. [Reuters]

SoFi Adds Credit Cards Focused on Rewards and Credit Scores

SoFi Technologies has added two new credit cards to its one-stop shop for digital financial services. One card is designed for consumers who prioritize earning rewards on their daily spending, while the other is for those focused on building or improving their credit scores. The new SoFi Everyday Cash Rewards Credit Card offers 3% unlimited cash back on dining, 2% unlimited cash back on grocery store and convenience store purchases, and 1% unlimited cash back on all other eligible purchases. The other new card, the SoFi Essential Credit Card, offers a “reliable credit line” for consumers focused on their credit scores and has no annual, over-limit or foreign transaction fees. [PYMNTS]