Abdelrahman
CNN
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Many Americans are struggling to cope with increasing debt levels, with some households feeling more financially strained than they have since the Great Recession.
Recently, the Federal Reserve Bank of New York provided a detailed analysis of the credit situation for American families, assessing key areas such as mortgages, auto loans, credit cards, home equity lines of credit, and student loans.
According to the Quarterly Report on Household Debt and Credit, overall household debt rose by 0.5% to reach $18.04 trillion in the last quarter of the previous year.
The report indicated growth across all major loan categories, with credit card debt exceeding $1.2 trillion—an increase of 7.3% compared to the previous quarter and marking the smallest annual growth rate since 2021.
Rising household debt can be influenced by various factors, including population growth, strong economic performance, seasonal spending during holidays, and the expansion of online shopping.
Additionally, prices have surged significantly, with inflation remaining elevated for almost four years.
Nevertheless, the report from Thursday revealed that many Americans are encountering increasing difficulties in managing their debt, particularly concerning auto loans and credit card payments.
The proportion of households facing serious delinquency—defined as missing payments for over 90 days—on their auto loans and credit cards has reached levels not seen in 14 years.
The rise in serious delinquencies is partly attributed to higher loan balances resulting from increased vehicle prices following the pandemic and associated supply chain challenges, according to researchers at the New York Fed.
“The surge in auto loan delinquencies is concerning,” noted Matt Schulz, chief credit analyst at LendingTree. “Many Americans rely on their vehicles for commuting to work, making this a top priority when it comes to bill payments. If they are struggling with auto loans, it might indicate broader financial difficulties.”
This trend appears to extend to credit cards as well. A report released last month by the Federal Reserve Bank of Philadelphia indicated that the number of credit card accounts making only minimum payments has reached a 12-year high in the third quarter of 2024.
The findings from the latest report displayed that instances of both early and serious credit card delinquency have remained high.
Moreover, borrowers are increasingly utilizing available credit, as evidenced by credit card usage rates climbing above 23.8% for the first time since 2013, based on an analysis of data from the New York Fed.
These growing balances are occurring in a challenging economic environment, characterized by persistently high interest rates.
Nonetheless, overall delinquency rates remain below those recorded before the pandemic, having increased to 3.6% of total debt in some stage of delinquency in the fourth quarter.
It’s also important to highlight that while debt levels are rising, incomes have simultaneously been increasing, assisting households in managing their financial obligations. Economists pay close attention to the household debt service ratio, a metric that tracks debt payments relative to disposable income.
The latest data from the Federal Reserve shows that this ratio is rising yet remains below pre-pandemic figures. In the third quarter of 2024, debt payments constituted 11.3% of disposable income, marking the highest level since early 2020.
“Currently, household financial health appears relatively stable overall,” stated Brett Ryan, a senior economist at Deutsche Bank, in an interview with CNN. “That said, there exists significant disparity across different income categories, with the top 20% of earners accounting for roughly 40% of consumer spending.”
Additionally, he noted that consumer spending continues to remain robust.
However, the latest data suggests that the situation could deteriorate quickly, as Schulz pointed out.
“This report reinforces the idea that while Americans are generally in decent financial condition, it wouldn’t take much for the circumstances to shift dramatically,” he mentioned. “A job loss, a medical emergency, or another unexpected financial setback could lead to significant challenges fast.”
This has been the plight of Monica Chavez and her family.
At 38, Chavez is among the increasing number of Americans facing long-term unemployment as businesses—particularly in white-collar sectors—have scaled back their workforce and hiring efforts.
This seasoned corporate recruiter has been searching for employment since May 2024, submitting numerous applications across various industries. Despite securing around 15 to 20 interviews, she has not received a job offer yet.
Meanwhile, her financial obligations continue to accumulate, exacerbating an already difficult situation.
Her fiancé was injured and is no longer able to manage his small business. Consequently, Chavez has postponed necessary dental and medical treatments for herself—including follow-up screenings after a tumor removal—and has cut out non-essential expenses, including activities for her three children.
She has depleted savings and retirement accounts, borrowed from family, and utilized cash advances on her credit cards to keep up with mortgage payments.
As her credit card balances approach their limits, she is reaching out to lenders in hopes of securing payment deferrals.
“This month marks the first time I’ve been late on a payment,” she shared with CNN in an interview. “I haven’t missed a payment by 30 days yet, but I’m definitely starting to receive calls.”
“Making the minimum payment is essentially all we can manage at this point,” she explained.
