The US economy is facing choppy waters, with a strong tailwind from a robust job market and record low unemployment, but near-double digit inflation and significant slowdowns from Wall Street to the housing industry.
But one thing that is not a mixed bag is our state of debt, which just skyrocketed in the second quarter of 2022, reaching unprecedented levels. More and more people are maxing out their credit cards, applying for new loans, and racking up debt more than ever, ostensibly as a way to keep up with the higher costs of goods and services.
In fact, US consumer debt just hit an all-time high!
According to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, household (consumer) debt exceeded $16 trillion by the end of Q2 2022, an all-time high.
From credit cards to auto loans, personal loans to student loans, mortgages, and yes, more credit cards, let’s take a look at the latest data that reveals the state of debt in the US.
Total Household debt
- As we mentioned, US household debt is now $16.15 trillion.
- Our total household debt grew 2% from just the previous quarter in 2022, a startling rise.
- Our total household debt balances are now $2 trillion above pre-pandemic levels.
- Americans now have more than 500 million general purpose credit cards, the highest number ever and the first time we’ve collectively topped 500 million cards. With approximately 258 million adults in the US, that comes to an average of more than two credit cards for every adult.
- During Q2 2022 alone, credit card balances rose by $46 billion.
- That’s also a 5.5% increase over Q1 2022 and a 13% increase since the same time the previous year.
- That 13% increase ($100 billion+) year-over-year represents the largest annual increase in credit card debt in 20 years!
- New credit card issuances rose by 233 million in Q2 alone, a rate not seen since the Great Recession of 2008.
Credit card delinquency rates
- Amidst this shocking increase in credit cards, credit card debt, and other loans, there is one relative bright spot: credit delinquency rates are still low.
- In fact, the delinquency numbers are actually lower than pre-pandemic levels!
- But outstanding and delinquent credit debt did rise to $890 billion during Q2 of 2022, a $100 billion increase from the same time a year earlier.
- According to the latest Fed data, the 30-day delinquency rate for credit cards jumped from 1.66% to 1.81% in Q2 of 2022, a nearly 10% increase.
- Credit card delinquency rates have risen for three straight quarters.
- Auto loan balances grew by $33 billion by the end of Q2 of 2022.
- That’s the largest increase in auto loan total debt in more than a decade since 2011.
- Auto loan delinquencies are one of the first signals that the dam is bursting when it comes to our unsustainable levels of debt.
- 60-day-plus delinquencies (called serious delinquencies) increased 40 basis points year-over-year through Q2 2022.
- Vehicle buyers who are financing their purchases are now spending more than $2,000 more on average than auto loan borrowers in Q2 2021.
- Loans for used vehicles have escalated particularly fast, with the average monthly payments for used vehicles up 22% from Q2 2021 through Q2 2022, now topping $505 monthly.
- However, not all forms of consumer debt jumped in 2022. Student loan balances have remained relatively steady, currently at approximately $1.59 trillion.
- We’ll soon see a significant reduction in US student loan debt levels as the White House just approved a $10,000-per-borrower forgiveness plan.
- Currently, about 43 million Americans own student loan balances, with an average balance of a troubling $37,000.
- During Q2 of 2022, the share of unsecured loans held by subprime borrowers rose to 11.8%.
- That’s up almost 30% from only 9.1% in Q2 of 2021.
- Balances on subprime credit cards also rose from 5.3% in Q2 2021 to 6.9% in Q2 2022.
What happens now – and why is this a huge problem?
As Americans look to absorb higher living expenses by turning to their credit cards and running up debt, a monumental problem is emerging. With pandemic-era stimulus and payment amnesty expired, the housing market in sharp decline, and the job market soon to slow, most people have nowhere to turn than their credit cards or loans to fill the gaps.
But mounting debt is like a ticking timebomb because most of these unsecured loans have payments based on variable rates, which means they can go up or down. As the Fed increases its benchmark rate to combat inflation, the cost of lending only goes up and up, which means the cost of our debt may be higher, too.
This is an oversimplification, of course, but the key takeaway is that those with significant balances may soon be paying WAY more for their credit cards, unsecured loans, personal loans, and more.
The result could be financially catastrophic to tens of millions of households.
If you have significant debt or find yourself putting more and more on credit cards, please contact Blue Water Credit to go over your options for paying it off!