Rising Delinquencies Signal Financial Struggles
Americans are falling behind on their debt payments at the highest rate in nearly five years, according to a new report from the Federal Reserve Bank of New York. The share of outstanding US consumer debt that’s in delinquency rose to 3.6% in the fourth quarter of 2024, the highest level since mid-2020.
With total household debt reaching a record $18 trillion, the report suggests that elevated interest rates—kept high by the Federal Reserve to combat inflation—are putting significant pressure on borrowers.
Auto Loans: A Key Source of Financial Stress
New York Fed researchers highlighted auto loans as a growing financial burden. The combination of higher car prices and rising interest rates has resulted in larger monthly payments, making repayment more difficult across all income levels.
“Used car prices have since declined from the peak, potentially leaving some borrowers underwater on those vehicles and creating potential repayment challenges,” wrote Andrew Haughwout and his team of researchers.
Serious delinquencies—defined as payments overdue by 90 days or more—climbed across several types of consumer debt:
- Auto loans: 3% transitioned into serious delinquency, the highest since 2010.
- Credit cards: 7.2% transitioned into serious delinquency, matching the highest level since 2011.
- Home equity lines of credit: Also saw an uptick in serious delinquency rates.
- Mortgages: Remained stable despite rising overall debt levels.
Credit Cards Lead the Surge in Debt
Credit-card balances saw the fastest increase in the fourth quarter, jumping 3.9%, while other forms of debt also climbed:
- Auto loan debt: +0.7%
- Student loan debt: +0.6%
- Mortgage debt: +0.1%
The report warns that more delinquencies may be on the horizon, particularly in student loans. A federal pause on student loan payments, in place from 2020 through late 2024, meant that missed payments weren’t reported. Now, as payments resume, millions of borrowers may find themselves behind, with official delinquency rates expected to rise further in early 2025.
What’s Next for Borrowers?
With inflation still a concern and interest rates remaining high, financial stress on American households is unlikely to ease soon. The Fed’s efforts to balance economic growth with inflation control could mean that rate cuts may not come until the second half of 2025, leaving borrowers to navigate rising debt costs in the meantime.
As the economic landscape continues to shift, analysts will be watching closely to see if delinquencies push even higher or if the labor market remains strong enough to keep consumers afloat.
