3 Signs That America's Debt Crisis Is Growing

An uptick in car loan and mortgage delinquencies, still-climbing credit card debt and record-high collections balances: These are just a few signs that Americans are majorly struggling to stay on top of what they owe.

In its new quarterly report released Wednesday, the Federal Reserve Bank of New York shows that household debt increased in July, August and September and now totals a whopping $17.9 trillion. Overall household debt — which includes mortgages, home equity loans and lines of credit, student loans, credit cards, car loans and other types of debt like store credit cards — rose by $147 billion last quarter, with increases across all types of debt tracked.

Mortgage debt rose by $75 billion, and balances on home equity lines of credit (HELOC) rose by $7 billion. All the forms of non-mortgage debt tracked by the survey ticked up, as well.

The New York Fed noted in a blog post that income growth is keeping ahead of debt among American households overall. Our collective debt-to-income ratio stands at 82% compared to 86% in 2019. Even as inflation has pinched people's pocketbooks and higher interest rates make borrowing money more expensive, increased income has helped offset the loss of purchasing power.

But a more detailed look at the data shows that some households are falling behind, with lower-income households especially vulnerable.

In addition, the youngest borrowers — those between the ages of 18 and 29 — displayed more financial distress than older ones, with a higher percentage holding debt overdue by 90 days or longer.

More people falling behind on home, car payments

The report finds that delinquency rates rose in the third quarter across all debt categories, with 3.5% of all outstanding debts in some stage of delinquency, up from 3.2% last quarter. (Delinquent debts are those more than 30 days past due.)

In its blog post, the New York Fed noted that delinquency rates have been climbing for the past couple of years and now are roughly where they were before the pandemic — although credit card and auto loan delinquency rates are now higher than they were in 2019.

More alarming is that the report shows an increase in these loans moving into what it terms “serious delinquency” — 90 or more days late. While falling behind on credit card bills can torpedo your credit score and make it difficult (or more expensive) to borrow money in the future, falling behind on loans backed by your house or your car leave you with the real risk that the lender will seize that collateral.

Serious delinquencies, collections balances grow

Debts overdue by 90-plus days rose across all debt categories from a year ago. These serious delinquencies were highest in the credit card debt category, rising to 11.1% in the third quarter. That's the highest since 2012.

While there hasn’t been a big jump in the number of people with accounts in collections — the stage when debt has moved past delinquency and been sent to a third-party collections agency — the amount those debtors owe is soaring, hitting a record average high of $1,705.

Credit card debt keeps climbing

For at least some households, the solution seems to be to keep borrowing.

Americans added $24 billion in credit card debt over the quarter. This brings the total up roughly 8% over a year ago, to the tune of nearly $1.2 trillion. With the average bank-issued credit card annual percentage rate (APR) at a record-high 21.8% as of August, it’s clear that we’re paying substantial amounts of money just to service our debt — and this burden is growing increasingly heavy for some borrowers.

Researchers at the Federal Reserve Bank of Philadelphia noted a worrisome increase in credit card delinquency earlier this year. In the first three months of 2024, delinquent credit card balances hit a 12-year high, even as the number of delinquent accounts ticked down slightly.

More from Money:

America’s Credit Card Crisis: Here’s How High the Average Balance Is Now

Best Credit Cards of August 2024

Credit Card Delinquencies Reach Highest Level in Over a Decade