Consumer Credit Challenges in 2023

As credit card debt hit an all-time high in the final three months of 2022 (just shy of $1 trillion), delinquencies among borrowers accelerated. In the fourth quarter, balances grew $61 billion to $986 billion, the Federal Reserve Bank of New York found. That marked the largest quarterly increase and the highest total since tracking began in 1999.

At the same time, the rate at which credit card holders missed payments and became more than 90 days behind was higher than before the pandemic, especially among younger borrowers, a potentially worrying sign when the student loan pause lifts later this year.
Financial professionals agree that the student loan moratorium has been a big deal and has allowed younger borrowers to really knock down a lot of credit card debt. However, it’s a sign of trouble ahead to think what’s going to happen to delinquency rates once everybody must start making student loan payments again.

With the average rate near 20% combining with higher consumer prices, they become another culprit behind rising credit card balances. So, it is imperative to establish a plan to reduce and eventually eliminate as much debt as possible.
While low unemployment has kept consumer’s financial footing generally strong, the combination of stubbornly high prices and climbing interest rates are becoming a challenge for many borrowers’ ability to repay their debts on time.
Americans have been facing higher prices everywhere…including on purchases they may be putting on their credit cards — at the grocery store, at the gas pump, and for many other types of goods wrote researchers in a blog post accompanying the report. “It is possible that increasing prices — and correspondingly, debt service payments — are cutting into borrowers’ balance sheets and making it more difficult for them to make ends meet.”

In addition, more auto loan borrowers are having trouble keeping up with their monthly payments, again especially among younger borrowers. Higher interest rates largely can’t be blamed for this increase because most auto loans have fixed rates. But the monthly payments of newer loans are higher, reflecting the run-up in car prices during the pandemic that has not completely subsided.
While there is no consensus that the rise in delinquency levels for both credit cards and auto loans could simply be a reversion to pre-pandemic norms, the elimination of much of the unprecedented level of government support has had some impact. Therefore, this multi-faceted predicament does present one critical quandary — will these delinquency rates continue to rise, or will they flatten out now?
Only time will tell.


Posted: March 2, 2023

Category: Home Management, Money Matters, UF/IFAS, UF/IFAS Extension, WORK & LIFE

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