The New York Federal Reserve reports debt delinquencies surged around 38% in 2023 as total consumer debt increased to $17.5 trillion. Of that, $1.13 trillion is credit card debt, marked by a 59% increase in delinquencies in 2023. In 2022, only 4.01% of credit card debt was 90 days or more past due. That spiked to 6.36% in 2023.
In addition to higher outstanding debts, borrowers have to deal with higher interest rates. The Federal Reserve increased its interest rates in March 2022 and has since hiked the borrowing rate by 5.25%. The United States currently has the highest interest rate since 2001. This increase is reflected in the average base credit card interest rate, which jumped from 14.6% to 21.5%.
The combination of increasing debt and higher interest rates translates to higher monthly payments for borrowers. These higher payments squeeze household budgets and make people even more likely to fall behind on their obligations.
Most-Strained Cities
Cities across the U.S. have significant debt delinquency issues, influencing residents’ financial well-being. A recent WalletHub study cites the cities experiencing high delinquency rates. The study determines definitive rankings by examining a given city’s residents’ delinquent tradelines — or an account that appears on a credit report — and residents’ overall delinquent loan balances. These two figures work in tandem to illustrate a city’s citizens’ overall financial health.
Laredo, Texas
Laredo, Texas, leads the nation in delinquency, with nearly one-fifth of the town residents’ total debt in delinquency. In the last quarter of 2023, an estimated 14.9% of Laredo residents’ personal loans and credit lines were delinquent.
Detroit, Michigan
Detroiters are delinquent on 14.8% of personal loans and credit lines. Residents are delinquent on about 16.5% of all debt — the second-highest rate in the country. The city’s individual credit delinquency rates ranked second, whereas its overarching debt rates put the city in third.
San Bernardino, California
Around 15% of San Bernardinans’ loans and lines of credit are overdue, catapulting the city to the No. 1 spot in individual delinquency. While the town’s 13% overall delinquency rate is lower than that of Laredo and Detroit, it still represents a significant financial burden for residents.
The Danger of Delinquency
WalletHub analyst Cassandra Happé expands on the significance of high delinquency rates. “Being delinquent on debt can significantly damage a person’s credit score and make it more difficult to get a credit card, rent apartments, or buy cars and homes in the future.”
Happé explains that many borrowers often have a 30-day grace period before delinquency is reported to credit bureaus. This timeframe offers some leeway to catch up on payments and avoid influence on credit scores, though late fees will likely apply.
Strategies To Avoid Debt Delinquency
Delinquent accounts can have serious consequences for American families, regardless of debt type. Once delinquencies find their way to credit reports, debtors bear the added burden for around seven years. While stressful, there are ways to combat potential delinquency and avoid additional financial strain.
Budget and Track Expenses
Responsible debt management starts with effective budgeting. Track income and expenses to understand where the money goes. Many free budgeting apps and online resources, like Mint, can help consumers craft personalized spending plans that are easy to follow.
Budgeters should distinguish between essentials like housing, groceries, and gas and nonessentials like entertainment or takeout. Allocate funds according to importance to ensure essential expenses remain covered. Monitor spending regularly within the budget and make adjustments where needed.
Make Extra Money To Fight Debt
Americans are turning to side hustles to generate extra income. The gig economy offers a flexible but lucrative way to make extra money without overrunning one’s schedule. Platforms like Fiverr and TaskRabbit connect skilled freelancers and side hustlers with people willing to pay for odd jobs like handyman services, pet sitting, and graphic design.
Explore different skills and interests to find the ideal gig for your skill set. Locate local opportunities through community forums or neighborhood apps. Allotting free time during evenings and weekends to gig completion can allow consumers to effectively pay down debts.
Debt Management Strategies
Resist the urge to take on additional debt unless necessary. By creating and slowly contributing to an emergency fund, debtors can better cover urgent costs without opening new lines of credit.
Pay down debts with the highest interest rates first. By prioritizing payments with high interest, consumers can save money in the long term, as less money will go toward interest.
Consolidate multiple debts into a single loan with a lower interest rate, as it can simplify repayment and potentially save money. However, carefully analyze the terms and conditions of consolidation loans before committing.
Communication and Seeking Help
Consumers concerned about making timely payments must contact creditors as soon as possible. Explain the situation to lenders, as many offer hardship agreements. Some may negotiate alternative repayment terms.
Numerous free resources are available to help with debt management, including credit counseling services. Non-profit organizations often offer such services and can provide personalized advice and help consumers create customized repayment plans.
Consult a financial advisor when in complex financial situations. Financial experts can offer tailored recommendations based on specific circumstances and financial goals.
Provided consumers follow these steps to proactively manage finances, they can significantly reduce the risk of debt delinquency and achieve improved financial stability. Remember: early intervention is key.
