Worry Mounts as Household Debt Surges and Delinquency Rates Soar

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Total household debt surged by $212 billion, reaching $17.5 trillion in the fourth quarter of 2023, as reported by the Federal Reserve Bank of New York. This includes credit card balances, mortgage loans, and auto loans, all hitting record-high levels. Concurrently, delinquency rates for most debt types continue to climb, stirring concerns among economists and financial analysts about the stability of the U.S. consumer-driven economy.

Credit Card Balances Hit Record High

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The outstanding credit card balances, currently at $1.13 trillion, increased by $50 billion, marking a 4.6% rise over the prior quarter. 

On an annualized basis, around 8.5% of credit card balances shifted into delinquency. Serious credit card delinquencies increased across all age groups, particularly among younger borrowers, surpassing pre-pandemic levels.

Balances in other categories, encompassing retail cards and various consumer loans, increased by $25 billion.

Auto Loan Delinquencies Accelerating

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Auto loan balances continued their upward trend, experiencing a $12 billion increase, and currently stand at $1.61 trillion, maintaining the trajectory observed since the second quarter of 2020.

On an annualized basis, about 8.5% of credit card balances and 7.7% of auto loans became delinquent.


Housing Debt on the Rise

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Mortgage balances increased by $112 billion from the previous quarter, reaching $12.25 trillion at the end of 2023.

Americans under financial stress have resorted to using their home equity lines of credit (HELOC), which saw an increase of $11 billion, marking the seventh consecutive quarterly rise since 2022. The aggregate outstanding HELOC balances now amount to $360 billion.

Mortgage delinquency transition rates saw a 0.2 percentage point increase.

Student Loans Unchanged Due to Favorable Policies

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The outstanding student loan debt remained relatively constant, at $1.60 trillion at the end of 2023.

But even the constant level of student debt could be misleading due to policy changes. Credit bureau reports will reflect the missed Federal student loan payments only at the end of 2024. Due to these policies, less than 1% of the total student debt was reported as 90+ days delinquent or in default in 2023 and is expected to remain low until at least the end of 2024

Americans Under Increased Financial Stress

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“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”

The credit quality of recently originated loans remained stable, with 4% of mortgages and 15% of auto loans extended to borrowers with credit scores below 620, showing little change from the third quarter. The median credit score for newly originated mortgages remained consistent at 770. In contrast, the median credit score for recently originated auto loans increased by one point compared to the previous quarter, reaching 720.

Americans are experiencing rising prices in various areas, including purchases made with credit cards, grocery expenses, fuel costs, and other goods. It is plausible that the escalating prices and resulting debt service payments negatively impact borrowers’ financial positions and make it more challenging to meet their financial obligations.

Since consumer spending is a critical component of the U.S. Gross Domestic Product, an uptick in delinquency rates as individuals attempt to manage debt payments with fewer financial resources could prove disastrous.

Increasing 401(k) Hardship Withdrawals Cast a Shadow on Middle-Class Financial Stability

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Recent reports from prominent financial institutions like Fidelity Investments, Bank of America, and Vanguard reveal a concerning trend: an uptick in the share of retirement plan participants resorting to hardship withdrawals from their 401(k) accounts. More individuals face immediate and significant financial strains, leading them to tap into their retirement savings as a solution. This rising trend signals a worrisome pattern, shedding light on the challenges many Americans are encountering.

Increasing 401(k) Hardship Withdrawals Cast a Shadow on Middle-Class Financial Stability

Retirement Millionaires? How Much Money Americans Have in Their 401(k)

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The latest Fidelity retirement study shows that the number of retirement millionaires jumped in the second quarter of 2023. There was a 10% increase in individuals holding 401(k) accounts, with over a million compared to the previous quarter. However, the average American has a significantly smaller 401(k) account balance.

Retirement Millionaires? How Much Money Americans Have in Their 401(k)

Unlock Passive Income: 15 Smart Investments That Pay You Monthly

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Dreaming of a consistent passive income every month from your investments? It’s not just a dream for the wealthy; it’s achievable for anyone willing to explore the possibilities. We will uncover various investments that promise monthly returns, from the well-known to the hidden gems. Whether you’re new to investing or looking to diversify your portfolio, discover how to create a dependable monthly income stream and take a step towards financial stability.

Unlock Passive Income: 15 Smart Investments That Pay You Monthly

Social Security Faces Insolvency in Just 10 Years

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The Trustees of Social Security and Medicare unveiled their yearly financial forecasts for both programs, looking ahead over the next 75 years. The newly released projections for Social Security paint a grim picture of rapid progression towards insolvency in 10 years, underscoring the urgent need for trust fund remedies to avert widespread benefit reductions or sudden adjustments in taxes or benefits.

Social Security Faces Insolvency in Just 10 Years

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