Millennials are taking on more debt than ever before

(CNN) — The financial burden on Americans, especially Millennials and those with low incomes, is increasing: Delinquencies on credit cards and auto loans have not only surpassed pre-pandemic levels, but are the highest in more than a decade. Is.

According to Bank of America’s latest quarterly report on household debt and credit, during the fourth quarter, US household debt reached a new high of $17.5 trillion, up 1.2% from the previous three months. Published on Tuesday by the New York Federal Reserve.

Loan balances increased across the board, with credit card balances rising by $50 billion to a new nominal high of $1.13 trillion (when adjusted for inflation, balances have yet to exceed levels seen in 2008). .

The higher balance can be attributed to population growth, increased online spending, rising costs of new and used cars, as well as consumer activity driving the economy. And while rising debt levels during the fourth quarter shouldn’t be a surprise (holiday spending typically causes credit card balances to rise), researchers at the New York Federal Reserve say they’re keeping a close eye on it. That’s how far Americans are falling behind.

Financial stress is increasing at a time when debt has become very expensive. Already burdened by nearly three years of high inflation, Americans now have to contend with painfully high interest rates.

“Credit card and auto loans continue to rise above pre-delinquency levels,” Wilbert Van der Klauw, economic research adviser at the New York Federal Reserve, said in a statement. “This points to increasing financial stress, especially among young and low-income families.”

During the fourth quarter, an annualized 8.52% of credit card balances and 7.69% of auto loan balances went into default, the highest annual rates since the second quarter of 2011 and the fourth quarter of 2010, according to data from the New York Federal Reserve. It shows. ,

Researchers at the New York Fed said overall delinquency rates remain relatively low, thanks largely to the strong performance of mortgages and student loans.

Mortgages, which make up the majority of total lending, were helped by a high-quality class of borrowers and a pandemic-era refinancing boom. Student loan defaults will not be reported to credit agencies until later this year as part of the Biden administration’s student loan relief efforts.

a ‘bad omen’

While student loan default rates may be the lowest on record, researchers at the New York Fed believe the resumption of payments has contributed to an increase in financial stress, especially for adults ages 30 to 39.

As such, things could get much worse before they get better, Matt Schultz, chief credit analyst at LendingTree, told CNN in an interview.

“Although we have reached the peak of inflation, it seems that inflation has not gone away,” he said. “Interest rates remain high, delinquency is rising, and many people have not begun to fully pay off their student loans because they are not required to do so yet.”

“There is every reason to believe that the near future will be very difficult when it comes to debt,” he said.

But how much worse it gets will depend on what is happening now. At the beginning of the year, Americans typically rein in spending and focus on paying off credit card debt accumulated over the holidays.

First quarter figures are reported on May 7.

“Historically, we see debt, especially credit card debt, decline in the first quarter, and while it was basically stable in the first quarter of 2023, that was a very bad omen for what’s ahead,” he said. . “It will be really interesting to see what the first quarter numbers are for 2024 and whether we see that decline again or whether we see a repeat of what we saw in 2023.”