American Household Debt Struggles: Credit Card and Auto Loan Delinquency Rates Are Now Higher Than Pre-Covid Levels

Keeping up with credit card and auto loan payments continues to become a problem for the average American household.

The rate of credit card delinquencies in the United States has surged beyond pre-Covid levels, marking a concerning trend as 7.2% of credit card holders fell behind on their payments during the second quarter, according to a report from the New York Fed

This worrying development is mirrored in the auto loan sector, where delinquency rates reached 7.3% in Q2, surpassing levels seen before the pandemic.

Despite a decline in inflation, American households are increasingly turning to credit cards to sustain their spending habits or uphold their consumption levels, as highlighted by Moody’s Investors Service. The rising interest rates on credit cards are compounding the issue, leading to higher balances for consumers.

Credit card balances surged by a staggering $45 billion during the second quarter, breaching the $1 trillion mark for the first time ever in the New York Fed’s survey history.

While the return to pre-pandemic delinquency levels might not be an immediate cause for alarm, it is noteworthy that such rates were historically low due to a robust job market prior to 2020. 

Looking ahead, the impending resumption of student loan payments for millions of Americans could potentially exacerbate the situation, forcing some individuals to rely even more heavily on credit cards and potentially driving delinquency rates even higher.

The Federal Deposit Insurance Corporation’s (FDIC) 2023 Risk Review also warns that the increase in credit card debt and auto loan delinquency could threaten banks and could lead to consumer lending to deteriorate if economic conditions worsen.

Information for this story was found via NY Fed, FDIC, Unusual Whales, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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