(CNN) — Americans are having a harder time managing rising debt burdens and in some cases haven’t been this overextended since the aftermath of the Great Recession.
The Federal Reserve Bank of New York on Thursday released its latest comprehensive look at credit conditions for American households in major categories such as mortgages, auto loans, credit cards, home equity lines of credit and student loans.
In the fourth quarter of last year, overall debt levels increased by 0.5% to $18.04 trillion, according to the Quarterly Report on Household Debt and Credit.
All major loan categories tracked in the report saw increases as well. Credit card balances topped $1.2 trillion, rising 7.3% from the fourth quarter of last year and logging the smallest yearly increase since 2021.
Higher levels of household debt are to be expected as they can reflect factors such as population growth, strong economic conditions, holiday-related spending and the rise of e-commerce.
Plus, prices are significantly higher as inflation has run hot for nearly four years.
However, Thursday’s report also showed that Americans appear to be having more difficulty dealing with that debt — specifically for auto loans and credit cards.
The share of households becoming seriously delinquent (a missed payment for 90+ days) on their auto loans and credit cards are at 14-year highs.
The increase in the percentage of loans transitioning into serious delinquency partly reflect the higher-balance loans that resulted from cars becoming significantly more expensive following the pandemic and related supply chain disruptions, New York Fed researchers noted.
“The news about auto loan delinquencies is troubling,” Matt Schulz, chief credit analyst at LendingTree, said in commentary Thursday. “Many Americans simply have to have a car to get to work, so that’s often one of the highest priorities when paying bills. If they’re struggling to make those payments, it could be a sign that they’re struggling to make others as well.”
That appears to be the case with credit cards. Last month, the Federal Reserve Bank of Philadelphia reported that the share of credit card accounts where people made just the minimum payment climbed to 12-year high during the third quarter of 2024.
Thursday’s report, which tracked activity for the fourth quarter, showed that transitions into early and serious credit card delinquency remained elevated.
Plus, borrowers are taking up an increasingly greater share of available credit. Through the fourth quarter, overall credit card utilization rates climbed north of 23.8% for the first time since 2013, an analysis of New York Fed data shows.
Those balances also are growing in an expensive environment for debt: Interest rates remain high.
Still, overall delinquency rates remain below what was seen pre-pandemic. During the fourth quarter, they ticked up to 3.6% of outstanding debt in some stage of delinquency, according to the report.
While debt balances are growing, it’s worth noting that incomes have been on the rise as well, which have helped households manage their debt. In addition to the New York Fed data, economists closely watch a separately released gauge from the Federal Reserve — the household debt service ratio, which tracks debt payments as a percentage of after-tax income.
The latest Fed data showed the ratio continues to increase but remains well below pre-pandemic levels. As of the third quarter of 2024, debt payments accounted for 11.3% of disposable income, which is the highest since the first quarter of 2020.
“At the moment, household balance sheets are in pretty decent shape in the aggregate,” Brett Ryan, senior economist at Deutsche Bank, told CNN in an interview. “Obviously, there’s a large disparity across income groups, but the top 20% account for about 40% of consumer spending.”
And consumer spending, he said, remains solid.
When the minimum payments become hard
However, the latest data also indicates that things could turn for the worse in short order, noted Schulz.
“This report feels like further proof that Americans are generally doing OK financially, but it wouldn’t take much for things to go from pretty good to pretty scary,” he wrote. “If they were to face a job loss, medical emergency or some other big unexpected financial crisis, things could get tough in a big hurry.”
That’s been the case for Monica Chavez and her family.
Chavez, 38, is among the growing ranks of Americans experiencing long-term unemployment as businesses — particularly those in white-collar industries — have trimmed their workforces and drastically curtailed hiring.
The longtime corporate recruiter has been actively job hunting since May 2024, submitting hundreds of applications across a broad array of industries. She’s had about 15 to 20 interviews as a result, made it to the second or third round on some, but ultimately didn’t get the final call.
At the same time, the bills are piling up, adding to an increasingly untenable situation.
Her fiancé was injured and unable to continue running his small business. She’s delayed dental and medical care for herself — including follow-up screenings after a tumor was removed — cut out discretionary spending, including extracurricular activities for her three kids.
She’s drained savings accounts, drained retirement accounts, borrowed from family members and used cash advances on credit cards to pay the mortgage.
Those credit cards will be maxed out soon, and she’s calling lenders in hopes of receiving deferrals.
“This month is actually the first month that I’ve been late on a payment,” she told CNN in an interview. “I haven’t hit a 30-day late mark or anything like that yet. But I’m definitely getting phone calls.”
Making the “minimum [payment] is pretty much all that we’ve been able to juggle at this point,” she said.
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