If youve been struggling to pay down your debt in the wake of rising interest rates and inflation, youre certainly not alone. Total U.S. household debt topped $17 trillion in the first quarter of 2023, according to the most recent Quarterly Report on Household Debt and Credit released by the Federal Reserve Bank of New Yorks Center for Microeconomic Data. The report, released on Monday, also found that delinquencies increased across all debt types.
So how did we get here?
Consumer debt and delinquencies up across the board in Q1 2023
For one, total credit card debt remained flat in the first quarter, at $986 billion. While that might seem like a good thing, its actually a troubling sign of the times. After racking up credit card debt on gifts and get-togethers over the holidays, consumers typically spend the first few months of the new year paying that debt back down. But in 2023, that hasnt been the case. Other balances, including retail cards and other consumer loans, also increased by $5 billion. Some experts believe this shows that the average person is relying on credit to cover their daily expenses, which have also seen record highs thanks to rampant inflation.
The delinquency rate among the number of people who fell 30+ days behind on credit cards payments increased as well. And about 4.57% of credit card debt transitioned to serious delinquency last quarter, meaning cardholders were more than 90 days past due. Thats up from 3.04% in the first quarter of 2022.
But credit card balances arent the only reason why Americans hold record levels of debt.
The report also found that mortgage balances rose (albeit modestly) to a total of $12.04 trillion at the end of March. This is despite the fact that mortgage originations, including refinances, dropped sharply in the first quarter of 2023 to the lowest level since 2014.
Auto loan balances also increased by $10 billion in the first quarter to $1.56 trillion, while student loan balances slightly increased to a collective $1.60 trillion.
The report also noted that the share of current debt becoming delinquent increased for most debt types.
The good news is that new foreclosures remained low at about 35,000roughly the same amount as in the fourth quarter of 2022. Additionally, less than 1% of aggregate student debt was 90+ days delinquent or in default in the first quarter of 2023, representing a small drop from the previous quarter. The report states, delinquency rates fell substantially in the previous quarter due to the implementation of the Fresh Start program, which made previously defaulted loan balances current.
How to get debt under control
Seeing your balances grow every month can feel hopeless. But you have the power to get your debt under control, even if that means asking for help. Here are some ideas for getting a handle on your debt when it feels like the world is working against you:
- Pay more than the minimum: If youre only making the minimum payment on your credit cards, it will take a long time to see any progress toward reducing the balance. Try increasing your payments beyond the minimum, even if its an extra $50 per month. Youll not only see your balance go down faster, but youll also save a ton on interest.
- Tackle your highest interest rates first: If you have multiple debts, focus your efforts on paying down the balance with the highest interest rate. Known as the debt avalanche, this strategy helps you save money and open up more cash flow by getting rid of your most expensive debts first.
- Find a 0% balance transfer offer: If you have a credit card balance accruing interest each month, consider transferring it to a new card with an introductory 0% APR. In exchange for a small fee (usually, around 3% of the total transfer amount), you can avoid racking up interest for a year or more. Meanwhile, 100% of your payments will go toward paying down the principal balance, helping you eliminate your debt faster and saving money in the process. Keep in mind, you need good credit for this option.
- Ask about hardship programs: The best thing to do if youre falling behind on debt payments is reach out to your creditor and let them know youre struggling. They may be able to temporarily alter the terms of your credit card or loan, such as lowering the interest rate or deferring payments, so you can get back on your feet.
- Meet with a credit counselor: If you feel like youre in over your head with debt, seek the services of a non-profit credit counseling agency. An accredited counselor can help you get organized and come up with a strategy for paying off your debt. They may even get you set up with a Debt Management Plan (DMP), which involves renegotiating your debts with creditors and making reduced payments over a set period of time.
The takeaway
Todays economic environment makes it tougher than ever to keep debt at bay. The cost of living is at an all-time high, and interest rates are at levels we havent seen since before the Great Recession.
Even though its difficult, eliminating debt is incredibly important. So if youre struggling with large balances and high payments, make a plan to pay it down and reach out for help, if necessary.
