The balance transfers are upon us.
Or maybe not.
Google an issuer, take a cursory glance at the search results, and it seems that any number of balance transfer cards are in the mix, promoting 0% interest — in some cases, for as long as 20 months or more.
But again, in the current rocky macroeconomic climate, and as noted by sites including CNBC in recent weeks, some banks have been cutting back on these offerings.
The steady upward march of inflation and the recent details on consumer debt from the Fed make this pullback somewhat easy to understand. Inflation, of course, is running hotter than expected, having touched new 40-year highs last week.
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At the same time, credit card debt, in the aggregate, stands at $841 billion, per data from the Federal Reserve. Overall, revolving credit increased at 19.6% year over year, as measured in April.
And as noted in this space last week, consumers are increasingly letting their credit card debt revolve and allowing interest to mount instead of paying off what they owe each month.
For the banks, pulling back on the balance transfer offers smacks of a playbook used in the Great Recession.
The Philadelphia Fed has noted in published papers that the balance-transfer offers had fallen more than 70% by mid-2008 (Figure 3). Along with that timeframe, promotional balance transfers as a percentage of credit card debt outstanding plummeted from about 40% at the beginning of 2008 to a low of about 10% during the recession.
History to Repeat Itself
History may repeat itself, even though total household debt as a percentage of income seems, at least for now, more manageable than had been seen a decade and a half ago. According to the Fed, that metric had been about 13% coming into the Great Recession, and it stands at about 9% now.
But with a deeper dive into some pressure points, consider that PYMNTS’ data has shown that more than 60% of us live paycheck to paycheck. Paycheck-to-paycheck consumers are three times more likely to have credit card debt than those who do not have challenges when paying their bills. That stat cuts across
With that much debt on hand, as interest rates rise, and without the ability to “switch” into a zero interest rate option, credit card debt becomes a more expensive challenge to the paycheck-to-paycheck household. The smoke signals are there. In March, Equifax reported that 11.3% of subprime borrowers’ personal loans and lines of credit were at least 60 days delinquent, and 11.1% of credit cards wielded by this cohort were 60 days past due. That compares unfavorably with the respective 10.4% and 9.8% rates seen only a year ago.
Read Also: Subprime Loan Delinquencies Signal Trouble for Paycheck-to-Paycheck Economy
We may see a ripple effect here — one that makes the banks’ reticence to launch balance transfer options opens the door for other companies to offer low-interest ways — personal loans, for example — to consolidate that debt and pay it down. Last month, we noted that in its latest earnings report, LendingClub’s new loan originations came in at $3.2 billion (up 5% from the most recent quarter). The banks pull back, yes, but others will step in.
