Americans are finding it increasingly difficult to manage their rising debt burdens, with delinquency rates for auto loans and credit cards reaching their highest levels since the aftermath of the Great Recession. The latest Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York reveals that total household debt increased by 0.5% to $18.04 trillion in the fourth quarter of 2024.
Mounting Debt and Rising Delinquencies
All major loan categories, including mortgages, auto loans, and student loans, saw increases. Credit card balances alone surged to $1.2 trillion, marking a 7.3% rise from the previous year. This spike in debt is partially driven by inflation, higher living costs, and increased consumer spending, especially during the holiday season.
However, the troubling trend is the growing difficulty in managing these debts. The share of borrowers who are seriously delinquent—missing payments for 90 days or more—has reached a 14-year high for auto loans and credit cards.
Auto Loans and Credit Cards Under Pressure
The surge in auto loan delinquencies reflects the impact of expensive car purchases, driven by post-pandemic price hikes and supply chain disruptions. Matt Schulz, chief credit analyst at LendingTree, highlighted the severity of this issue, noting that “many Americans need a car to get to work, and if they’re struggling with those payments, they’re likely struggling elsewhere too.”
Credit card debt is also becoming unmanageable for many. The Federal Reserve Bank of Philadelphia recently reported that the share of credit card holders making only minimum payments hit a 12-year high in the third quarter of 2024. Meanwhile, credit card utilization rates surpassed 23.8% for the first time since 2013, all while interest rates remain high.
Debt vs. Income: A Balancing Act
While delinquency rates are rising, overall debt burdens remain below pre-pandemic levels. Household incomes have also increased, helping some manage financial obligations. The Federal Reserve’s household debt service ratio—a measure of debt payments as a percentage of disposable income—rose to 11.3% in the third quarter of 2024, its highest since early 2020.
However, economists warn that financial stability remains fragile. “Household balance sheets are in decent shape overall, but there’s a wide disparity among income groups,” said Brett Ryan, senior economist at Deutsche Bank. The wealthiest 20% of households drive 40% of consumer spending, keeping economic activity afloat.
A Precarious Situation for Many
For individuals like Monica Chavez, a 38-year-old corporate recruiter, the financial strain has become overwhelming. Despite an extensive job search since May 2024, she remains unemployed. Her fiancé’s business has shut down due to an injury, leaving them with mounting bills.
To stay afloat, Chavez has drained her savings and retirement funds, borrowed from family, and used credit card cash advances to cover essentials. She has also postponed medical treatments and cut all discretionary spending. This month, for the first time, she was late on a payment. “Making the minimum is pretty much all we can do right now,” she said.
Economic Uncertainty Ahead
Experts caution that while many households are managing for now, an unexpected crisis—such as job loss or medical emergencies—could push them over the edge. “This report is further proof that Americans are generally doing OK financially, but it wouldn’t take much for things to go from pretty good to pretty scary,” Schulz warned.
With high interest rates and inflationary pressures persisting, the financial well-being of American households remains uncertain, and the risk of a worsening debt crisis looms.
