Minneapolis (CNN) Americans’ debt levels continue to climb to new heights at a time when economic conditions are becoming increasingly unstable.
Household debt hit a new record high of $17.05 trillion in the first quarter, up $148 billion or 0.9% from the fourth quarter last year, the Federal Reserve Bank of New York reported Monday.
This debt load has increased by $2.9 trillion since the end of 2019.
During the first quarter, the increase in debt was seen across virtually every category, with larger (and new record) balances for mortgages, mortgages, car loans, student loans, personal cards and other consumer loans.
Notably, credit card balances were flat — held at $986 million — during the first quarter, apparently as an outlier; However, this is the first time in more than 20 years that there hasn’t been an outright decline in that category, NY Fed researchers said.
Typically, the first three months of the year provide a bit of a breather for credit cards after their heavy holiday workout as consumers cut back on spending and pay down some debt through New Year’s resolutions or tax refunds.
It didn’t happen this time.
“The fact that they didn’t fall in Q1 this year doesn’t bode well for the rest of the year,” said Matt Schulz, chief credit analyst at LendingTree.
Effects of robust spending
To this point, credit card debt has grown at the sharpest pace of any debt covered in the report, said Ted Rossman, senior industry analyst for Bankrate.
“I think it reflects more people using credit cards to fund everyday necessities (although there’s also an element of people using less cash and more people using cards for convenience and rewards and paying them off straight away),” he said . notes that Bankrate research shows that 46% of cardholders have month-to-month debt, with 54% paying in full, Rossman said. Last year, 39% had month-to-month debt.
The primary culprits are inflation, spending increases since the pandemic and typical consumer behavior, Schulz said. Increases in credit card debt can either be a sign of confidence or struggle, he added.
“Except in times of economic disaster, like the onset of the pandemic or the Great Recession, credit card debt just keeps growing,” Schulz said. “These two events are the only times in decades where we’ve seen a meaningful decline in credit card debt.”
Despite debt climbing to new records, households on average are effectively managing their obligations: The share of current debt falling due increased across most debt types; However, they remain mostly below pre-pandemic levels, according to the New York Fed report. The crime rate fell sharply at the beginning of the pandemic.
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The “refinancing boom” helped households’ financial positions, New York Fed researchers noted. During the pandemic, 14 million mortgages were refinanced, making it possible to extract $430 billion of home equity through refinancing. About 64% of those actions were homeowners who refinanced to a lower interest rate, allowing an average payment reduction of $220 per month, according to the researchers.
“The mortgage refinancing boom is over, but the impact will be seen for decades to come,” Andrew Haughwout, director of household and public policy research at the New York Fed, said in a statement. “As a result of significant equity draws, mortgage borrowers reduced their annual payments by tens of billions of dollars, providing additional funding for spending or paying down other debt categories.”
Still, this latest batch of household data carries some worrisome signals, New York Fed researchers and analysts note.
Auto loan defaults for younger borrowers, those under 40, surpassed pre-pandemic levels. With inflation driving up car prices, the average payment hovers around $700 a month, Rossman said.
“For some people, a car payment can compete with a lease payment, but again, [rent] has gone up so much that I think it’s the cumulative effect,” Rossman said. “Higher prices on a lot of things, higher interest rates: I feel like those trends are colliding in a negative way, unfortunately for a lot of households.”
Additionally, this report does not fully reflect the impact and debt load of buy-now, pay-later loans, New York Fed researchers noted.
And student loans — an area where some Americans have gotten some breathing room in part because of pandemic-era forbearance programs — could be another shoe to drop at a time when recession fears are rising and other macroeconomic concerns (like the banking crisis or the current debt ceiling crisis) loom, Schulz said .
“It’s never a good time to be in debt, but it’s even worse when there’s a lot of uncertainty,” he said.
For consumers who have loaded up on debt, there is a silver lining of higher savings rates, Schulz said.
And Rossman noted that there are other paths as well.
“For the foreseeable future, we’re stuck with high credit card rates, high balances and more people carrying debt,” he said. “My advice would be to pay off credit card debt, as quickly and cost-effectively as possible. I know that may be easier said than done, but 0% balance transfer cards are still plenty to pause that interest rate clock for up to 21 months.”
He added: “Chances are if you have credit card debt, this is your highest interest rate by a wide margin, so I really think it needs to be a priority.”