Americans' fears of missing a debt payment rise
NY Fed survey shows third monthly increase in a row
Expert on consumer credit laws and regulations.
Americans' fears of missing a minimum debt payment rose in June for the third month in a row, according to the Federal Reserve Bank of New York.
The New York Fed’s Survey of Consumer Expectations asks consumers to estimate their odds of missing a payment at some point within the next three months. In June, the average response was 12.41 percent, up from 10.72 percent in March.
Who is most likely to miss a payment? The survey found wide demographic differences. People under age 40 put their chances at 18.5 percent, while those age 40 to 60 said 14.3 percent, and people over 60 said just 5.5 percent.
As for education levels, people with a high school diploma or less put their odds at 15.5 percent, versus 13.6 percent for people with some college and 8.1 percent for people with at least a four-year degree.
Delinquencies are rising, bank group says
The anxiety may be well-founded – late payments are already on the rise, according to the American Bankers Association.
Delinquencies on bank cards – credit cards issued by banks – rose more than one-half a percentage point to 3.06 percent of all accounts, according to the ABA’s Consumer Credit Delinquency Bulletin for the first quarter of 2018.
Are higher debt loads and rising interest rates putting a chokehold on consumers’ finances?
The late payments come as credit card balances rise to new heights. In May, balances rose $9.7 billion to a total of $1.04 trillion, according to the Federal Reserve.
While it is true that credit card debt has passed its pre-recession peak, economists say delinquencies are still modest, and are the natural result of the long economic expansion.
Late payments still below long-run normal
“Delinquencies have been so low for so long that it is not surprising to see them ease back toward more normal levels,” James Chessen, ABA’s chief economist, said in a statement. The jump in delinquency came as growth in credit card debt moderated during the first quarter, he said.
“Bank card delinquencies have been near historical lows for five years as consumers have done a great job managing their levels of debt,” Chessen said. The 15-year average delinquency rate on bank cards is 3.56 percent of accounts.
When you take income into account, household debt loads are still low by historical standards, Chessen said. “The ratio of credit card debt to disposable income remains low and is nowhere near pre-crisis levels,” he said.
The debt-to-income ratio was 5.5 percent in the first quarter, compared to levels above 8 percent before the financial crisis.
Rising rates make balances more expensive
However, balances will continue to be more expensive to carry, increasing the squeeze on household budgets. The Fed has raised its benchmark federal funds rate by seven steps of a quarter-point each since 2015. Economists expect more to come as the central bank tries to keep the economy from overheating.
The “Federal Reserve is likely to continue to raise rates in a gradual but consistent fashion – 25 basis points once a quarter is a good bet at least over the next year or so,” TD Economics chief economist James Marple said in a recent analysis.
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