US Economy Masks Credit Crisis as Debt Hits Millions: Chicago and Houston Rank Highest for Financial Distress
The financial health of the United States may be deceiving, as millions of Americans find themselves drowning in debt. According to a recent report from personal finance site WalletHub, the cities of Chicago and Houston have the highest number of people experiencing financial distress. The study analyzed 100 large cities based on various indicators of financial duress, including bankruptcy filings, credit scores, accounts in forbearance, and internet searches related to debt and loans.
Chicago and Houston, along with New York and Los Angeles, topped the list of cities with the most citizens facing financial difficulties. However, it’s important to note that the ranking took into account the rates of distress relative to each city’s size, rather than just the raw numbers. On the other end of the spectrum, Boise, Idaho, emerged as the city with the fewest citizens in financial peril.
The timing of this report is significant, as Americans are currently increasing their spending, borrowing more, and saving less. Credit card debt, in particular, has reached a record high of $1.13 trillion by the end of last year. Additionally, the personal savings rate has dropped to 3.8% in January, down from around 7% before the COVID-19 pandemic.
Experts attribute this financial strain to a combination of factors, including rising interest rates and consumer prices. As inflation soared to a 40-year high of 9.1% in the summer of 2022, people began resorting to unsecured debt, such as credit cards, to make ends meet. The Federal Reserve responded by raising its key short-term interest rate from near zero to a 22-year high of 5.25% to 5.5% between March 2022 and July 2023.
The impact of inflation and rising interest rates is particularly evident in cities that ranked high on the WalletHub list. Inflation, along with the overall cost of goods, has played a significant role in exacerbating financial distress. Chicago, for instance, ranked sixth on another recent WalletHub list of cities with the biggest inflation problems. Houston also made the top ten on that list, with prices rising by 4.5% in the past year.
Among the cities studied by WalletHub, Chicago experienced the largest increase in the share of citizens with credit accounts in distress. This indicates a growing number of Chicagoans facing financial difficulties and seeking forbearance or deferral options for their accounts. The city also had one of the highest rates of search interest in “debt” and “loans,” suggesting that residents are already burdened by debt or actively seeking ways to manage it.
Houstonians are also spending a significant amount of time online searching for loans or debt relief. More than 8% of the population in Houston has accounts in financial distress, indicating a widespread struggle with debt.
While the statistics paint a grim picture, there is a silver lining. The high search interest in “debt” and “loans” suggests that individuals are actively seeking help and solutions to their financial problems. Mike Croxson, CEO of the National Foundation for Credit Counseling, acknowledges this positive trend, stating, “The good news is, people are raising their hand and looking for help.”
Apart from Chicago and Houston, other cities that made it to the top ten on the WalletHub list include New York, Los Angeles, Dallas, Las Vegas, San Antonio, Atlanta, Riverside, and Jacksonville. These cities exhibited various indicators of financial distress, such as rising bankruptcy filings, weak credit scores, and frequent online searches related to debt.
The report serves as a reminder that despite the seemingly robust state of the US economy, there is an underlying credit crisis affecting millions of Americans. As inflation continues to rise and interest rates climb, it is crucial for individuals to seek financial guidance and explore strategies to manage their debt effectively. By taking proactive steps, Americans can navigate these challenging times and regain control of their financial well-being.