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Liabilities American Households Amid a tough economic environment for consumers, delinquency rates have skyrocketed over the past few years, reaching their highest levels in more than a decade.
According to a quarterly report released this month by the Federal Reserve Bank of New York, Household credit and debt It found that between the first quarter of 2021 and the second quarter of 2024, credit card debt surged 48.1%, while household debt, including mortgages and auto loans, increased 21.6%.
In dollar terms, credit card debt grew from $770 billion at the start of 2021 to $1.14 trillion in the most recent quarter, while household debt grew from $14.64 trillion to $17.8 trillion over the same period.
Delinquency rates are rising as U.S. households’ debt burdens grow. About 9.1% of credit card debt and 8% of auto loan balances fell into delinquency over the past 12 months, the highest levels since early 2011 and late 2010, respectively. Early mortgage delinquency rates rose 0.1 percentage point, but the New York Fed noted they are still low by historical standards.
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According to the New York Fed, the credit card delinquency rate reached 9.1%, the highest level since 2011. (Photo Illustration: Justin Sullivan/Getty Images/Getty Images)
The reason behind the growing debt burden of American households is that the inflation rate reached 9.1% in June 2022, the highest level in 40 years. Federal Reserve System To curb inflation, the central bank has embarked on an interest rate hike campaign to raise its benchmark interest rate to 5.25%-5.50%, the highest level in 23 years.
“There’s more than one reason for the increase in debt,” Matt Schultz, chief credit analyst at LendingTree, told FOX Business, explaining that taking on debt can be a sign of confidence or distress for households, but the current economic climate tends to suggest the latter.
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The New York Fed reported that delinquency rates on auto loans rose to 8%, the highest level since 2010. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
“Some people have to borrow money to survive,” he says. “Others are confident in their financial situation and are willing to take on a little bit of debt for other purposes, such as: Small and medium-sized enterprises Or renovating a house.”
“But I think there is no great doubt today that a lot of debt is caused by hardship and not by confidence. Stubborn inflation “Higher interest rates are taking a toll,” Schultz said.
“Inflation has shrunk the financial cushion of many American families to almost nothing. When the prices of gasoline, groceries and pretty much everything else skyrocketed, that meant less money to put toward financial goals like building up emergency funds or paying off debt,” he explained. “For some, the problem is even worse. Rely on credit cards And to earn a living.”
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American household debt has skyrocketed in recent years. (Christopher Dilts/Bloomberg via Getty Images/Getty Images)
Schultz, a personal finance expert and author of the new book, “Ask, Save, Earn More: How to Take Control of Your Financial Life,” said the tough economic times are causing more borrowers to fall into delinquency.
“The reason defaults and debt are rising is because high debt, record interest rates and persistent inflation have come together to create a perfect storm that is hitting many American families very hard. Frankly, the fact that defaults are not rising feels like a sign of the resilience and strength of the American consumer,” Schultz said.
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He added that he thinks “delinquency rates are likely to continue rising for some time” and that “if unemployment spikes, things could get worse very quickly.”
FOX Business’ Edward Lawrence contributed to this report.
