Consumer debt in the United States skyrocketed by $13.1 billion in September, a sign of increasing financial strain on American households. This surge brought overall consumer debt to an all-time high of $18.59 trillion. That includes debt from mortgages, auto loans and credit card balances. Consumer debt is increasing at an annual rate of 3.1 percent. That’s a huge deceleration from the pre-pandemic norm of around 5 percent.
The Federal Reserve recently released new data that uncovers a disturbing trend. At the same time, U.S. households are facing skyrocketing debt levels and out-of-control interest rates. Credit card corporations have driven the average APR to an astounding 19.98 percent. In fact, some are charging rates as high as 28 percent! These abnormally high rates place an undue financial burden on millions of consumers. Combined with rising costs, late payments are increasingly common.
The new data shows that as of the third quarter, the share of student loans entering serious delinquency skyrocketed to 14.3 percent. That’s up from 12.9 percent in the Q2 and 8 percent in the Q1. This month’s jump represents the fastest rate of movement into serious delinquency since the data series began in 2000. This new reality raised fear about the graduates’ long-term financial welfare and their capacity to make debt work for them in the future.
In the third quarter, that cumulative rate of debt flow into serious delinquency — the share of active debt that is seriously delinquent — leapt to 3.03 percent. That’s a huge increase from only 1.68 percent one year ago. Late payments among prime borrowers increased by 47 percent annually. This signals that for even the most creditworthy of borrowers with the strongest credit profiles, this is real adversity.
In September, revolving debt—consisting almost entirely of credit card balances—experienced a slight uptick of $1.6 billion, or a mere 1.5 percent annual increase. Non-revolving credit—which consists mainly of auto loans and student loans—jumped by $11.4 billion, a much bigger 3.7 percent spike. Consumers are making the shift to this type of financing for larger purchases. At the same time, they’re being much more prudent about accruing new credit card debt.
Revolving debt growth has really slowed down this year. As interest rates continue to rise and uncertainty looms around the economy, households are forced to be much more cognizant of their financial situations. Consumer sentiment appears to reflect a cautious approach to spending, with many opting to prioritize essential expenses over discretionary purchases.
Financial analysts warn that increasing levels of consumer debt might be a threat to the economy at large, too. If this trend continues, consumer spending will be forced to slow dramatically. This kind of reduction would deal a major blow to U.S. economic growth, hurting business and our booming labor market.