A recent report by the Federal Reserve Bank of New York has found that American households are increasingly struggling with debt burdens, with many facing financial difficulties and rising delinquencies on their loans. The report shows that overall debt levels increased to $18.04 trillion in the fourth quarter, with credit card balances reaching a 7.3% increase and auto loan delinquencies at 14-year highs.
The growing debt burden is attributed to various factors, including high inflation, population growth, and strong economic conditions. However, many households are finding it challenging to manage their debt, with credit card utilization rates climbing above 23.8% for the first time since 2013. Borrowers are taking on more debt, but interest rates remain high, making it even harder for them to pay off their loans.
Despite this, incomes have been rising, which has helped households manage their debt. The household debt service ratio, a measure of debt payments as a percentage of after-tax income, has increased to 11.3%, the highest since the first quarter of 2020. However, this trend may be at risk if consumers face unexpected financial crises or job losses.
For many Americans, including Monica Chavez, a growing number are struggling with long-term unemployment and mounting debt. Chavez, who is unemployed after her corporate recruitment job was cut, has had to delay medical care and dental appointments, cut discretionary spending, and use cash advances on credit cards to pay bills. Her situation highlights the challenges faced by many households in managing their debt in an increasingly uncertain economic environment.
The report from the Federal Reserve Bank of New York serves as a warning that things could turn for the worse if consumers face unexpected financial shocks or job losses. As interest rates remain high, borrowers may struggle to make ends meet, and delinquencies on loans are likely to rise further.
Source: https://edition.cnn.com/2025/02/13/economy/us-household-debt-credit-q4/index.html