An expressive picture of the debts of American families
America’s economy
Amidst delays in payment cases
Americans continued to grow in debt at the end of last year, and their credit card balances rose at record rates, according to data from the Federal Reserve Bank of New York on Household Debt and Credit.
According to the data, total US household debt reached a record high of $16.9 trillion during the fourth quarter, an increase of $394 billion, or an increase of 2.4% over the previous three-month period. While the lion’s share of debt belongs to mortgages, the report showed that not only are credit card balances ballooning at record levels, but delinquency is also on the rise.
Credit card balances increased by 6.6% to $986 billion during the last quarter of 2022, the highest quarterly growth ever. Credit card balances also grew by 15.2% over the past year compared to 2021 figures, according to a report published by the American network “CNN” and viewed by Al Arabiya.net.
The Federal Reserve has raised interest rates dramatically over the past 11 months in an effort to combat high inflation. The rise in interest rates affected the housing sector, and during the last quarter of last year, mortgage installations fell to 2019 levels.
A historically strong labor market has helped sustain consumer spending. However, they are doing so in an environment of historically high inflation and high interest rates.
Credit card borrowers face a triple problem. The Congressional Budget Office had estimated that the United States threatened to default on debt obligations by next July if lawmakers failed to resolve the deadlock and raise the federal borrowing limit. The predictions of the nonpartisan office, which makes recommendations to Congress, came as Republicans threaten not to agree to raise the federal credit limit unless Democrats first agree to big future budget cuts.
“It’s a triple problem for credit card borrowers,” says Bankrate senior industry analyst Ted Rossman. “Balances are going up, interest rates are up, and more people are carrying credit card debt.”
And in an environment of inflation and high interest rates, Americans are having more trouble meeting their payment obligations. The share of current debt in arrears increased across almost all types of debt, with credit cards and auto loans showing delinquency transparency rates of 0.6 and 0.4 percentage points, respectively.
At the end of 2022, there were 18.3 million delinquent credit card borrowers, compared to 15.8 million at the end of 2019.
The New York Fed researchers see that younger borrowers in particular, in their 20s and 30s, are struggling to make payments on auto loans and credit cards.
High interest tests the abilities of borrowers
While overall delinquency levels are still lower than seen before the pandemic – 2.5% of outstanding debt was at some point in delinquency as of December, compared to 4.7% at the end of 2019. But researchers at the New York Federal Reserve They confirmed that this environment is a cause for concern.
“Although historically low unemployment rates have maintained the financial strength of consumers in general, stubbornly high prices and high interest rates may be a test of the ability of some borrowers to pay off their debts.
The researchers noted that if there is a deterioration in the labor market, that would be a concern for consumer debt and default levels. They added: “While individual delinquencies are high, we do not anticipate widespread pressure on lenders’ portfolios as weighted delinquencies remain at or below pre-pandemic levels..but, on a personal level, this financial distress are real, and the late signs will affect their access to credit for years to come.”
Ending the existing federal student loan forbearance could not only lead to an increase in delinquency on education loans but also extend to credit cards and auto loans as well.
