Americans are increasingly failing to make payments on their credit cards and auto loans, according to recent data from the Federal Reserve Bank of New York.
The New York Fed reported that the rate of new credit card delinquencies reached 7.2% in the second quarter of 2023, while new auto loan delinquencies hit 7.3%, with both figures being above pre-COVID levels.
It also noted that credit card debt climbed by $45 billion to a record high of $1.03 trillion in 2Q, as 11 interest rate hikes over the last 18 months have boosted credit card rates to an average of 24.37%, making it even more difficult for consumers to cover the monthly interest costs on their debt.
By having to pay interest on the interest, debt-serving costs can quickly spiral out of control, creating further delinquencies and defaults.
Compounding the consumer debt problem is the approximately $1.6 trillion in student loans outstanding, with payments on those debts set to resume in October.
About 2.5 million student loan borrowers had at least one delinquent non-student loan as of March 2023, which is a delinquency rate higher than before the pandemic, according to a June Consumer Financial Protection Bureau report.
Contact Sean at sean@proactiveinvestors.com