Synergy Consulting Group Logo

Growing up in the US, personal credit cards balance could easily get out of hand if not managed carefully. Admittedly I was one example in my earlier years at the University I attended. Near the campus of the university where I attended, there were booths offering credit cards lined up on my way to class. Of course, being a young lemming and no education on how compound interest worked at the time, it was like free money. Buy now and pay later (maybe personal finance should be a class they offer in the universities).

If you read our Blog on, we were on point that Black Friday and Cyber Monday in 2023 despite the poor economic conditions and high interest rates. There were many offers where you buy now and pay zero interest till 2025. Low and behold, US consumers posted record sales, which led to even greater debt on your balance.

Following up to that, take a closer look at…

1) where are balance is now.

2) cost of living and price inflation. 3) what solutions are out there.

According to the Federal Reserve, the chart below, entering February 2024. Americans now owe a collective $1.13 trillion on their credit cards. toward the principal — a pattern that is increasingly difficult to break, the consumer watchdog said.

High Balance Coupled with High Rates:

Credit card rates are at a variable rate and in this high rate environment, where balances were already high due to the but spiked 11 rate hikes, including four in 2023. There’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did, as well, and credit card rates followed suit.

The average annual percentage rate is now more than 20% — also an all-time high. American Express, is near 29%. That said, their business model is somewhat different. As a famous author mentioned, while month to month payment cards exist now, AMEX’s original revenue scheme was membership fees and lower merchant charges.

page2image30842176Double danger: With high interest rates that are variable coupled with high balances, American households are in financial stress. Many are already complaining they live paycheck to paycheck, when 2025 comes due, it’s “time to pay the piper”.

As noted, credit card alone is a staggering $1.13tn and there are no signs of stopping. While the Fed mentioned rates will stay on hold and carefully watch the unemployment data, it’s a gloomy outlook for consumption.

UK and now Japan are both in recession and while there are two schools of thoughts about if US will have a soft landing, we view that the ugly snake hasn’t rear its head out yet.

Moreover, recent quarterly earnings signal that many tech, financial companies even UPS will cut jobs in the thousands. Cisco announced also they will cut thousands of jobs today.

Mostly due to the pandemic and the massive government stimulus, until recently, most Americans benefited from a few government-supplied safety nets, including the large injection of stimulus money during the pandemic, which left many households sitting on a stockpile of cash that enabled some cardholders to keep their credit card balances in check. But that cash reserve is largely gone after consumers gradually spent down their excess savings from the Covid-19 years.

Credit card balances increased by $50 billion, or roughly 5%, in the fourth quarter of 2023, the New York Fed found. We are already seeing signs of credit card delinquency rates which also jumped — particularly among younger millennials, or borrowers between the ages of 30 and 39, who are burdened by high levels

of student loan debt.

Some Possible Solutions:

1) It may be obvious but lower purchases unless it’s necessary. We don’t need to pick up a $5 to 6 Starbuck every morning.

2) Limit eating out. If you have a meeting with a friend, go for coffee instead of a nice dinner or lunch. When you go out to dinner, you are not only paying more depending on the restaurant, but it’s also become a norm to pay an additional 18- 30% tip.

3) For the younger millennials, once your credit is considered delinquent, financing for homes, cars and many other big-ticket items will be more expensive in the future.

4) If you have revolving credit where you are paying 20%+, switching into a zero- interest rate card should be obvious.

Lastly, review your credit card statements and often.

Leave a Reply

Your email address will not be published. Required fields are marked *