Late Loan Payments Rampant; New Government Report Shows Household Debt Levels At Record High – Forbes Advisor – Technologist

A new report from the New York Federal Reserve has revealed that Americans are struggling under a record amount of consumer debt, leading to more missed payments, higher balances and dwindling savings. And younger adults are being hit the hardest.

Americans’ total household debt burden reached a new high of $17.5 trillion in the final quarter of 2023, an increase of $212 billion from the previous quarter, according to the Fed’s Quarterly Report on Household Debt and Credit. All major loan types experienced upswings:

• During the final three months of 2023, credit card balances jumped by $50 billion to $1.13 trillion.
• Balances on mortgages, the most common type of consumer debt, surged $112 billion to a total of $12.25 trillion.
• Auto loan balances rose by $12 billion, reaching $1.61 trillion.

Late Payments More Common, Increasing Loan Delinquency

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” Wilbert van der Klaauw, economic research advisor at the New York Fed, said in a statement.

“This signals increased financial stress, especially among younger and lower-income households,” van der Klaauw added.

Accounts that are at least 30 days past due are generally considered delinquent by creditors and may be reported to credit bureaus as such.

Consumers Lagging On Car Payments

Consumers are falling behind on their auto loan payments at a faster clip, the report showed. By the end of December 2023, 7.7% of car loan debt was 30 days late, the highest percentage since 2010. At the end of 2022, that share was 6.6%.

The rise in delinquencies has occurred as the cost of owning and operating a vehicle has skyrocketed. Car insurance rates have jumped by double digits in recent months. Parts shortages in the auto industry since 2021 have driven up prices, leading buyers to borrow more for their purchases. Meanwhile, auto loan interest rates have increased over the past two years, resulting in higher monthly payments.

Thirtysomethings Lead in Credit Card Delinquencies

Credit card balances grew by $50 billion during the fourth quarter of 2023, the New York Fed reported. At the same time, credit card late payment rates rose significantly. This was  particularly true for Millennials aged 30 to 39, many of whom are grappling with substantial student loan debt.

Although student loan delinquency rates are low, researchers at the New York Fed suggest that the resumption of payments has heightened borrowers’ financial strain.

The Fed’s Household Spending Survey asked people with student loans how likely they thought they were to miss payments on things like mortgages, credit cards, or car loans once they had to start paying back their student loans. On average, borrowers reported they were 11.8% more likely to miss a payment for non-student debt, such as mortgages and credit cards, the survey found.

Many also said they planned to reduce or deplete their savings to make payments.

HELOC Balances Continue To Grow

In the fourth quarter of 2023, mortgage balances on consumer credit reports rose by $112 billion, reaching $12.25 trillion by year end.

At the same time, balances on home equity lines of credit, or HELOCs, significantly increased in the fourth quarter, rising by 3.2% compared to the previous quarter and by 7.1% year over year. That marked the seventh consecutive quarter of growth, with the figure up 13% from two years ago.

The upward trend in HELOCs has been influenced by the recent surge in mortgage rates. Homeowners don’t want to give up their ultra-low mortgage rates in the 3% and 4% range by refinancing, so they’re tapping equity using HELOCs instead.

Coping With Debt

The stress of debt can take a toll on your mental health. A recent Forbes Advisor poll of Americans in debt found that 48% had trouble sleeping, 40% were living with increased anxiety, 38% reported diminished social lives and 34% experienced depression.

Fortunately, help is out there. If you find yourself with an unmanageable amount of debt, you have a few options:

• Hire a third party to help you. That might include a debt attorney or debt settlement company. Be aware that debt settlement can damage your credit and isn’t guaranteed to work.
• Work with a credit counselor on a debt management plan. A debt management company can work with your creditors to restructure your debt so that it’s easier for you to pay it off.
• Negotiate a lower payoff amount with your creditors. Experts recommend letting the debt collector make the first offer. Ask something like, “What are you willing to offer me to settle this debt?”