(CNN) — Americans, especially millennials and low-income people, are experiencing increasing financial burdens: delinquencies on credit cards and auto loans have not only exceeded pre-pandemic levels, but are the highest in more than a decade.
During the fourth quarter, US household debt reached New high At $17.5 trillion, up 1.2% from the previous three months, according to the Federal Reserve Bank of New York's latest quarterly household debt and credit report published on Tuesday.
Debt balances rose across the board, with credit card balances rising by about $50 billion to a new nominal level of $1.13 trillion (and when adjusted for inflation, balances have not yet surpassed the levels observed in 2008).
The higher balances can be attributed to population growth, increased online spending, the rising cost of new and used cars, as well as consumer activity driving the economy. While rising debt levels during the fourth quarter shouldn't come as a surprise (holiday spending typically leads to higher credit card balances), researchers at the Federal Reserve Bank of New York say they're closely monitoring how much Americans fall behind.
Financial pressures are increasing at a time when debt has become expensive. Americans, already burdened by nearly three years of high inflation, must now contend with painfully high interest rates.
“Credit card and auto loan transitions into delinquency continue to rise above pre-pandemic levels,” Wilbert van der Klaauw, an economic research adviser at the Federal Reserve Bank of New York, said in a statement. “This indicates increasing financial pressures, especially among younger and lower-income families.”
During the fourth quarter, 8.52% of credit card balances and 7.69% of auto loan balances defaulted, the highest annual rate since the second quarter of 2011 and the fourth quarter of 2010, data from the Federal Reserve Bank of New York show. .
Overall delinquency rates remain relatively low, mainly due to the strong performance of mortgage and student loans, researchers at the Federal Reserve Bank of New York said.
Mortgage loans, which account for the majority of total debt, have been supported by a higher quality class of borrowers and a pandemic-era refinancing boom. Student loan delinquencies will not be reported to credit agencies until later this year as part of the Biden administration's student debt relief efforts.
“bad luck”
While student loan default rates may be the lowest ever, researchers at the Federal Reserve Bank of New York believe that student loan default rates may be the lowest ever. Resume payments Contribute to increased financial stress, especially for adults aged 30 to 39 years.
As such, things could get a lot worse before they get better, Matt Schulz, senior credit analyst at LendingTree, told CNN in an interview.
“Even though we have reached peak inflation, it seems that inflation has not gone away,” he said. “Interest rates are still high, delinquencies are on the rise, and many people haven’t started paying off their student loans in full, because they haven’t necessarily had to yet.”
He added: “There is every reason to believe that the near future will be very difficult when it comes to debt.”
But how much worse it gets may depend on what happens now. At the beginning of the year, Americans typically rein in spending and focus on paying off the credit card debt they racked up during the holidays.
First quarter numbers will be announced on May 7.
“Historically, we see debt, especially credit card debt, going down in the first quarter, and when it was essentially stable in the first quarter of 2023, that was a very bad omen for what's to come,” he said. “It will be really interesting to see what the first quarter numbers are for 2024 and whether we see that decline again or whether we see a repeat of what we saw in 2023.”
