Data from the Federal Reserve shows that credit card debt and auto loans are two big factors driving consumer distress.
02/05/2024 1:00 P.M.
2 minute read
Consumers are struggling to repay debts, and new data shows that financial distress levels related to credit card debts, auto loans and mortgage debt have increased since the COVID-19 pandemic struck.
A Federal Reserve Bank of St. Louis report recently found that the delinquency rates for those three debt types increased from the third quarter of 2021 to the same quarter of 2023—credit cards by 1.77 percentage points, auto loans by 0.56 percentage points, and mortgages by 0.30 percentage points. In particular, distress due to credit cards spiked to levels not seen since the Great Recession.
Researchers consider an individual in financial distress if they have “an account that is 30 days or more past due, excluding severe derogatory debt (more than 120 days past due).”
Using data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, researchers found that financial distress levels gradually declined from 2008 to 2021. They observed that throughout the pandemic, “restricted spending during lockdowns, government transfers, and forbearance programs allowed many households to escape financial distress.”
But in 2023, rates shot up, with credit card debt taking the lead as the most troublesome for adults aged 20-64. Mortgage debt, while higher in 2023 than in 2021, saw the smallest uptick.
“The incidence of financial distress for mortgage debt in the third quarter of 2023 (0.72%) is smaller than the pre-pandemic level (1.05%) and well below the incidence of financial distress during the Great Recession (2.51%),” according to the survey. “The difference in the behavior of mortgage debt is probably due to the large difference in the behavior of house prices. While house prices declined during the Great Recession, they have increased since the onset of the pandemic.”
The concern over rising debt is heightened by the fact that Americans are now experiencing the highest level of delinquencies since 2012.
In November, outstanding credit balances surpasses the $5 trillion mark for the first time, with revolving credit, largely comprising credit card usage, soaring by nearly $19.5 billion, which marked the third-highest monthly increase on record since 1943, ACA recently reported.
The Federal Reserve Bank of New York will release its Q4 Quarterly Report on Household Debt and Credit this week detailing trends in household borrowing and indebtedness, also including credit cards, mortgages and auto loans. In the third quarter 2023, the Fed found that total household debt increased by $228 billion, ACA previously reported. Credit card balances in the third quarter 2023 increased by $48 billion, marking the eighth quarter of consecutive year-over-year increases, according to a Fed blog post. Credit card delinquencies in the third quarter also continued to rise from lows seen before the pandemic.
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