Out-Of-Control Credit Card Debt: The Banks Don’t Care About You

The Juice likes to create a flow across our newsletters. Sort of like pulp-free orange juice fortified with calcium and Vitamin D. 

Last week, we sang the praises of the Magnificent 7 and other powerful tech stocks, particularly Nvidia (NVDA):

It’s Nvidia’s (NVDA) world and everybody else is just living in it …

Because the only thing Nvidia is guilty of — if anything —is not living up to sort of absurd expectations.

We started off this week by considering a reality we don’t talk about much. For many Americans, there are real practical and psychological barriers to investing. These obstacles don’t only apply to “poor” people. They can impact the middle and even upper class. It’s all about cash security. 

In reality, the best way to preserve cash security is to earn outsized returns on your money. Historically, the best place to do this is in stocks. One of the worst ways to realize cash security is to fund your life with credit cards. 

So, today, we consider all of this, as we look at rising and, really, out-of-control credit card debt. 

The Juice has been on this story for a long time. Since like 2022 really, when — remember this number — consumer credit card debt was at a record $1.1 trillion. 

All along, we have been saying:

… the traditional media doesn’t like this type of story. It takes too long to develop. They’ll only jump all over it when there’s a spectacle. A crash. We’ve been covering it every step of the way.

Now, here we are about two years later and credit card debt is at another record high. According to the New York Fed, it’s at $1.14 trillion. Doesn’t seem like a large increase when you look at moves in the trillions. But, as the Fed notes, credit card debt “increased by $27 billion during the second quarter and are 5.8% above the level a year ago.”

Serious delinquencies are up sharply across the board, especially for 18-to-39 year olds. As of the latest report, 9.1% of card credit balances moved into delinquency. At the beginning of 2022, that number was just over 4%. 

To make sure the Fed isn’t crazy, we like to check bank earnings reports:

• At Bank of America (BAC), net charge-offs were $931 million in Q2/2023. As of Q2/2024, they’re up to $1.5 billion. It’s telling. The bank talked a lot in its conference call about how well its consumer division is doing. This line, direct from the call, is all you need to know: “Consumer growth was driven by credit card borrowing.”
• At Wells Fargo (WFC), net charge-offs went from $764 million at the end of Q2/2023 to $1.3 billion at the end of the most recent quarter. To be fair, much of this, at Wells, is commercial, but consumer is still up. And, like BofA, Wells is saying they expect these increases to normalize in the second half of this year. The Juice doesn’t believe it. 
• At JPMorgan Chase (JPM), things are really insane. Directly from that company’s call: “And credit costs were $3.1 billion, reflecting net charge-offs of $2.2 billion and a net reserve build of $821 million. Net charge-offs were up $820 million year-on-year, predominantly driven by Card.”

Wow! 

Here’s what JPM’s CFO had to say about the numbers: 

Yeah. I still feel like when it comes to Card charge-offs and delinquencies, there’s just not much to see there. It’s still – it’s normalization, not deterioration. It’s in line with expectations.

Okay. So, I guess if you know the ship is sinking (and you put money in reserves to safeguard against it), all’s right with the world. The CFO chalked things up to some weakness in the low-income “cohort.” 

Such a funny (and shitty) perspective from a bank. We’re healthy, so don’t worry. 

All of that said, we’re skeptical that things will normalize. We’ll see what the rest of the year brings. And, of course, we’ll update things once or twice more in 2024 and definitely in 2025. 

From a consumer perspective, average credit card interest rates are around 21.5%, up from about 16% in 2022. While these might come down, don’t get too excited. 

Because, first, it will take big moves by the Fed to see significant declines in rates. And, two, any meaningful decreases in credit card interest rates we do see are likely to benefit well-off consumers who enjoy the lowest rates. People in the 25%-to-30% category shouldn’t expect much relief. 

As you can see from the language on the conference calls, the big banks are more than fine sending low-income cardholders into collections and such. It’s merely the cost of doing business to them. 

The Bottom Line: It will be interesting to see how this all plays out. While we don’t think any of this will impact the stock market, it matters to the nation. The wider the disparity between the haves and have nots, the less we can be proud of what we’re doing here as a society. 

On the other hand, your pandemic money ran out. So, for goodness sake, don’t maintain the lifestyle you lived when the government helped subsidize it. And, if you have credit card balances from back then, pay them off. If you can’t, take it as a lesson to never use plastic again, unless it’s a debit card.

• What Does The Election Mean For Your Money?
• Unlock Daily Stock Gems – FinPro Secrets Spilled!
• Does The United States Need National Rent Control?
• Check Out The Juice’s Favorite ETF Screener