Debt remains a big problem for most Americans. The recession that occurred 15 years ago forced millions out of work and reduced job prospects among young adults. After the recovery, consumer debt leveled and slightly decreased from 2008 to 2012. However, the COVID-19 pandemic took a toll on the economy, forcing many people into insolvency and foreclosure, making them incapable of paying their obligations or providing for their loved ones. While the economy is stabilizing, the job market is strengthening, and consumer spending is increasing. However, the increasing interest rates and high inflation have weighed down most consumers. Delinquency rates on mortgages, auto payments, and credit cards have been growing while savings have been shrinking.
According to Fitch Ratings, 60-day auto payment delinquencies for individuals with poor credit increased from 5.8% in August to 6.1% in September – the highest level of lateness since 1994. On the other hand, the Federal Reserve data indicates that 90-day delinquency on credit cards increased to 5.1% from 3.4% in the second quarter of 2022. This steady increase in delinquencies shows that consumers are struggling to repay balances on credit cards.
In August 2023, credit card debt and other forms of loans surpassed the $1 trillion mark, while outstanding balances on bank cards reached $851.4 billion, an 18.1% increase from where they were in 2022. Since the pandemic, personal saving levels have declined, coinciding with the increased use of credit and the delinquency rate. According to Lending Tree, 64% of Americans don’t make any savings. Census Bureau data indicates that only 25 million American households get income from interest payments, rental properties, or stock market dividends – about 100 million households do not.
Despite a decline in inflation over the last year, which has reduced from 9% last June to 3.7% in September, President Biden’s administration has received poor marks in public opinion polls. The Associated Press conducted a poll in August, which revealed that only 36% of Americans support Biden’s stewardship of the economy, while 42% support what he is doing as president.
Biden’s administration has launched an expanded initiative to support financial institutions directed toward minority-owned and operated businesses and less privileged communities. This will lead to a $50 billion and $80 billion increase in lending to Latino and Black communities, respectively. This might help reduce the burden on borrowers.
