Best way to pay off credit card debt as delinquencies surpass pre-pandemic levels

More Americans are buckling under the weight of mounting credit card debt.

All stages of credit card delinquency (30, 60 and 90 days past due) jumped higher during the third quarter of last year, surpassing pre-pandemic levels for the first time, according to a report released Thursday by the Federal Reserve Bank of Philadelphia.

The Philadelphia Fed analyzed consumer credit card and mortgage data that large banks provide to the Federal Reserve on a quarterly basis.

Philly Fed researchers found that 3.19% of credit card balances were 30 days late (up from 2.76% the quarter before); that 2.21% of balances were 60+ days delinquent (up from 1.91%); and that 1.52% were in serious delinquency of 90 days or more (up from 1.32%).

As such, a greater share of people are revolving all or part of their credit card balance. As of the third quarter, 33.18% of accounts paid off their balance in full. That's the lowest share since the fourth quarter of 2020, Philadelphia Fed data show.

The delinquency rates exceeded those seen during the fourth quarter of 2019, and are close to setting a high for the data series that started in 2012, according to the report.

"In response to this deterioration, banks are granting fewer credit line increases and reducing credit lines more frequently in the recent four quarters," economist Gene Huang and senior analyst Anna Veksler wrote.

This nearly three-year stretch of high inflation and strong consumer spending has helped to send consumer debt - especially credit card balances - ballooning. In November, outstanding credit balances surpassed the $5 trillion mark for the first time, according to Fed data released earlier this week.

The rising delinquencies are coming at time when debt is getting painfully expensive. Interest rates are the highest they've been in two decades, a direct effect from the Fed's monetary policy tightening campaign.

"Just paying 20%+ interest every month, the minimum payment math is brutal," Ted Rossman, senior industry analyst with Bankrate, told CNN Business in an interview earlier this week.

Borrowers making the minimum payment on an average credit card balance of $6,000 at the average rate of 20.74% would be in debt for more than 17 years and end up paying $9,000 in interest, Rossman said.

It's typically practical matters - that surprise medical bill, unexpected home or car repair, and day-to-day expenses - that get people into credit card debt, Rossman said.

"That's been all too common in the past couple of years with high inflation making gas and groceries and just about everything else more expensive," he said. "It tends to be practical stuff, but it's still a tough cycle to break."

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