Share of Consumer Debt in Delinquency Tracks the Highest in Almost Five Years

The best way to break this news is with the immortal non-words of canine cartoon characters Astro and Scooby Doo: “Ruh Roh.”

The share of US household debt in delinquency rose to a nearly five-year high of 3.6% in the last three months of 2024, according to a Federal Reserve Bank of New York report released Thursday. The data shows a growing cohort of consumers under distress with limited relief in sight.

Pretty, Pretty Good

It should be said that the top line news from Thursday’s report was, as non-cartoon character Larry David would say, “pretty, pretty good.” While household debt — which includes auto loans, credit cards, mortgages and student loans — rose 0.5% to an all-time high of $18 trillion, “consumers are in pretty good shape in terms of the household debt landscape,” Fed economists wrote. That’s because wages have gone up in recent years, bringing borrowing relative to income below pre-pandemic levels (in simpler terms, people are making more and so can afford to pay off more debt).

But then, there are auto loans. While the Federal Reserve cut interest rates by a total percentage point last year, its campaign to tamp down inflation still isn’t over. For that reason, interest rates are still relatively high and, for that same reason, interest on monthly auto loan payments — which lenders base on the Fed benchmark rate — has also remained high. NY Fed researchers said this has clobbered consumers “across the income and credit score spectrum”:

• Serious delinquency for auto loans — when a payment is 90 or more days overdue — rose to 3% in the fourth quarter, the highest since 2010. The Fed’s researchers noted that used car prices, which have come down after soaring during the pandemic, have potentially left “some borrowers underwater on those vehicles.”
• The serious delinquency rate for credit cards rose to 7.2%, the highest since 2011. The overall delinquency rate of 3.6% of debt was the most since the second quarter of 2020, though it remains low compared with pre-pandemic norms.

In a sign that the Fed’s progress tamping down inflation may have stalled, wholesale prices rose 0.4% last month, the Bureau of Labor Statistics said Thursday. That’s not a great sign for potential rate cuts, which could bring down the interest on loans.

Credit Check: Americans’ total credit card balances hit a record high of $1.21 trillion, according to the Fed. That news comes a week after progressive independent Senator Bernie Sanders teamed up with Republican Senator Josh Hawley to introduce a bill that would cap credit card interest rates at 10% for five years, with President Donald Trump signalling his support. A Forbes report published this month found the average rate was 28.6%, while banks can borrow from the Fed at under 4.5%.