Americans have dug themselves into a credit card hole

• America's credit card debt has surged, and distress could peak this year.
• Banks could write off the largest share of credit card loans since 2011, finance experts predict.
• Debt distress will be driven by weaker consumer finances, thanks to elevated inflation and interest rates.

Benton McClintock, 27, had been running away from his credit card bill for nearly a decade before deciding to pay it off. When McClintock was in college, he began paying for big trips to Milan, Paris, and other getaways with his credit card, and—until his balance had ballooned to $40,000—thought nothing of it.

When his American Express Platinum card, which doesn't have a traditional credit limit, began running into a hard borrowing cap, he realized he was in trouble. McClintock spent the last year paying off the debt aggressively, a Sisyphean task that involved him putting 90% of his income toward his credit card bill and living on thin margins.

"Every day," he said when asked if he was stressed about his finances. "You just become numb to it, I think."

Today, McClintock is debt-free, but many others are still struggling. Americans have been digging themselves deeper into a hole of credit card debt over the last several years, and some financial experts think debt pain will peak this year, with more banks writing off loans and consumers making even deeper sacrifices to pay their credit card bills, personal finance pros told BI.

They added that consumer finances will weaken, leaving many ill-equipped to deal with the fallout from pandemic spending binges. Sticky inflation and elevated borrowing rates will also contribute to distress.

Measures of debt distress are already on the rise. More credit card balances are shifting into late payment status, with the delinquency rate on credit card loans climbing 3.23% in the third quarter, the highest level since 2011, according to Federal Reserve data.

Meanwhile, the charge-off rate on credit card loans — another measure of debt distress that refers to the percentage of card balances banks have written off their balance sheet — rose to 4.69% in the third quarter, the highest level in 13 years.

The charge-off rate on credit card loans is expected to peak around 5% by the middle of this year, according to a projection from Fitch Ratings. That would represent the largest percentage of distressed credit card loans banks have written off since the years following the Great Financial Crisis, Fed data shows.

The National Foundation for Credit Card Counseling is also expecting consumer credit card distress to worsen in the near term. The foundation estimated its average client reached "Stage 6" on its Debt Burden Scale over the fourth quarter, a severe form of debt distress where consumers are cutting back on essentials, like food, to service their credit card payments.

The trend of higher debt distress looks poised to continue through 2025, the firm said in its latest Financial Stress Forecast.

Bruce McClary, senior vice president of membership and communications at the NFCC, said that he was seeing more people make sacrifices to service their credit card loans, such as by borrowing against their home or their 401(k).

In particular, he's expecting a surge of debt-distressed consumers to come in for help in the next three months, as Americans face bills coming due from the holidays.

"We're expecting these levels of stress to reach a level significantly higher than anything we've seen over the past four years," he said. "l think it would be also true to say that we're expecting it to go beyond what we saw pre-pandemic."

Credit card nation

Americans are leaning on credit cards to get by more than ever. Household credit card balances surged to a record $1.17 trillion as of the third quarter of 2024, up $360 billion from the third quarter of 2020, New York Fed data shows.

That increase was driven by a perfect storm of factors, McClary said, pointing to how credit card companies loosened lending standards during the pandemic, as well as the accumulated effects of higher inflation. The higher cost of living, combined with the post-pandemic shopping boom, made consumers more likely to carry a balance from month to month.

But those consumers are looking far worse than they did several years ago. Households likely depleted their excess savings from the pandemic by the first quarter of 2024, according to an analysis from the San Francisco Fed.

Meanwhile, credit card companies began rolling up their emergency forbearance programs in 2022, which were implemented to provide debt forgiveness during the pandemic.

Nearly half of all credit card users said they carried a balance month-to-month, according to a 2024 Bankrate survey, up from 39% of users who carried a balance in 2021.

Of those who held credit card debt, 29% of users said they believed it would take them more than 5 years to pay off their loans, while 6% said they believed they would never be able to pay their dues.

Heather Hunt, the director of Fitch Ratings, says she largely expects debt distress to rise as consumer finances continue to weaken in 2025, especially if the job market deteriorates.

"The short story is that if unemployment is rising, then your charge-offs are going to rise. And that just signals consumers are under more and more distress," she said.

Interest rates on credit card plans charged by commercial banks soared past 21% in 2024, the highest in at least three decades, according to Fed data dating back to 1994.

Meanwhile, 28% of credit card debt holders said day-to-day expenses, like groceries, were the largest reason they carried their balances month to month, according to Bankrate's survey.

McClary says he advises people struggling with credit card debt to speak to a nonprofit credit counselor as soon as possible.

"If you're falling behind on your payments, the delinquency interest rates, the penalty interest rates combined with the fees, could be the death blow," McClary said. "And that's just unsustainable for people who are already financially struggling and are living paycheck to paycheck."

Are you struggling with credit card loans, a mortgage, or other forms of personal debt? Email this reporter to share your story: jsor@businessinsider.com.