With inflation eating away at paychecks, you may be sinking deeper into debt. If you are, you aren’t alone.
A report by the Federal Reserve Bank of New York shows total household debt rose by $148 billion, or 0.9% to $17.05 trillion in the first quarter of 2023. As something of a surprise, credit card debt didn’t increase very much.
Instead mortgage balances climbed by $121 billion and stood at $12.04 trillion at the end of March. Auto loan and student loan balances also increased to $1.56 trillion and $1.60 trillion, respectively.
While credit card balances were flat in the first quarter, at $986 billion, that runs counter to the typical trend. Fed economists note credit card balances usually go down in the first quarter of most years.
Tony Dwyer, chief market strategist at Canaccord Genuity, believes an increase in consumer spending on credit cards is only beginning, flashing a warning sign for American households as well as the U.S. economy. In an interview with CNBC, Dwyer said consumers are still spending only because they have available credit.
“At some point, you’re going to deplete your cash,” Dwyer said. “At some point, the money supply data, the movement of money out of deposits into money market funds, and the use of credit cards are going to hit a level that is unsustainable and I think we’re pretty close to it.”
In an environment of rising interest rates, consumers cut back on other types of debt. Mortgage refinancings were sharply lower because homeowners with 3% mortgage rates were not eager to start paying 6%. That means home equity is staying in the home and not being taken out to spend on other things.
The volume of new auto loans was $162 billion, a reduction from pandemic-era highs but still elevated compared to pre-COVID volumes. Again, interest rates may be keeping some people from purchasing a new vehicle.
Holding onto cars longer
This week S&P Global Mobility reported that the average age of vehicles on U.S. roads hits 12.5 years, another record. The report said there are almost 122 million vehicles in operation that are over 12 years old.
High interest rates, along with inflation, may be making it harder for Americans to keep up financially. The Fed’s report shows the share of current debt becoming delinquent increased across nearly all types of debt. The delinquency transition rate for credit cards rose by 0.6% and 0.2% for auto loans.
Sometimes, having a little coaching and information can help consumers get a handle on their finances when debt starts to rise. Check out what ConsumerAffairs learned when we rated credit counseling agencies.