The rising trend in car loan and mortgage delinquencies, alongside the escalating credit card debt and unprecedented collections balances, paints a concerning picture of financial distress among Americans. These indicators suggest that many individuals are grappling with the challenge of managing their financial obligations effectively.
According to the latest quarterly report from the Federal Reserve Bank of New York, household debt has surged during the months of July, August, and September, now reaching an astonishing total of $17.9 trillion. This comprehensive figure encompasses various forms of debt, including mortgages, home equity loans and lines of credit, student loans, credit cards, car loans, and other forms of debt such as retail credit cards. Overall household debt increased significantly by $147 billion in the last quarter, with notable rises across all debt categories analyzed.
Specifically, mortgage debt alone increased by $75 billion, while balances on home equity lines of credit (HELOC) saw a rise of $7 billion. Notably, all forms of non-mortgage debt tracked by the survey also experienced upward trends, indicating a widespread issue affecting various segments of the population.
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The New York Fed highlighted in a recent blog post that while income growth is outpacing debt accumulation for most American households, significant disparities exist. As of now, the collective debt-to-income ratio is at 82%, a notable improvement from 86% in 2019. Although inflation continues to exert pressure on household budgets and rising interest rates increase borrowing costs, the overall increase in income has provided some relief, helping to mitigate the adverse effects on purchasing power.
However, a closer examination of the data reveals that certain households, particularly those with lower incomes, are struggling to keep up with their financial commitments. These vulnerable groups are at heightened risk of falling behind, indicating that the economic recovery is not benefiting all segments of the population equally.
Moreover, younger borrowers, specifically those aged 18 to 29, are showing signs of increased financial strain, with a higher percentage of them carrying debts that are overdue by 90 days or longer compared to their older counterparts. This trend raises concerns about the long-term financial health of this demographic and the potential for increased economic challenges in the future.
Delinquency Rates on Home and Car Payments Are on the Rise
The recent report indicates a troubling increase in delinquency rates across all forms of debt in the third quarter. Currently, 3.5% of all outstanding debts are in some stage of delinquency, a rise from 3.2% in the previous quarter. Delinquent debts are defined as those that are more than 30 days past due, signaling a growing trend of financial distress among borrowers.
As highlighted in the New York Fed’s blog post, delinquency rates have been on an upward trajectory for the past couple of years, now aligning with levels observed prior to the pandemic. However, it is alarming to note that the delinquency rates for credit cards and auto loans have surpassed those recorded in 2019, suggesting that these sectors are experiencing more significant challenges.
Even more concerning is the increase in loans entering what is categorized as “serious delinquency,” which refers to debts that are 90 days or more overdue. Falling behind on credit card payments could severely impact your credit score and complicate future borrowing opportunities. Additionally, defaulting on loans secured by assets such as homes or vehicles poses a real risk of repossession, creating even greater financial insecurity for borrowers.
Growth in Serious Delinquencies and Collections Balances
Recent data shows that debts overdue by 90 days or more have escalated across all categories compared to the previous year. Among these, credit card debt has seen the highest rates of serious delinquencies, increasing to an alarming 11.1% in the third quarter—marking the highest level since 2012. This trend underscores the growing financial burdens faced by many households.
While the overall number of individuals with accounts in collections has not experienced a significant surge, the total amount owed by these debtors has reached unprecedented heights, averaging around $1,705. This record average illustrates the increasing financial pressure on those who find themselves unable to keep up with their payment obligations.
Continuous Increase in Credit Card Debt Among Americans
For many households, the prevailing strategy appears to be continuing to borrow amidst rising financial burdens. In the most recent quarter, Americans collectively accrued an additional $24 billion in credit card debt, pushing the total accumulation to nearly $1.2 trillion. This represents an approximate 8% increase from the previous year, highlighting a concerning trend of increasing reliance on credit.
The average annual percentage rate (APR) on bank-issued credit cards reached a record high of 21.8% in August, indicating that borrowers are facing substantial costs just to manage their existing debt. This growing burden is becoming increasingly unsustainable for many, leading to heightened financial anxiety.
Researchers at the Federal Reserve Bank of Philadelphia have observed a troubling rise in credit card delinquency rates earlier this year. In the first quarter of 2024, delinquent credit card balances surged to their highest level in over a decade, even as the number of accounts in delinquency decreased slightly. This paradox suggests a more profound financial strain among those who are already facing difficulties.
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