MW Americans are piling on debt at a furious pace, as tariffs loom

Andrew Keshner

Credit-card bills and car loans swelled at the end of 2024

Americans kept piling on debt during the holiday season, opening up a large number of new credit cards and stalling - at least for now - a hope that credit-card delinquencies would start reversing their high levels, according to a new look at Americans' debt burdens at the end of last year.

Americans added $93 billion in mortgage and nonmortgage debt during the fourth quarter of 2024, with almost half the sum coming from newly acquired credit-card debt, according to the Federal Reserve Bank of New York's quarterly report on household debt.

Americans' collective credit-card bill stands at $1.2 trillion, a more than 7% increase from the same point one year earlier. The total balance on car loans is now $1.65 trillion, a nearly 3% increase year over year. Those are both record highs, though the numbers are not adjusted for inflation.

The fourth quarter is when consumers usually run up their credit-card bills, and open up new ones, as they shop for gifts, food and the holiday experience. In the following quarter, balances typically decrease, New York Fed statistics show.

But the latest New York Fed report comes a day after inflation numbers showed hotter-than-expected cost-of-living expenses in January. The fourth-quarter debt statistics at the end of the Biden administration also precede the tariffs planned by the Trump administration - which some economists say will increase households' expenses by $1,200 a year and heat up inflation.

Consumers are still trying to catch up after four-decade-high inflation rates under Biden, and middle-income households, in particular, say they plan to cut spending this year as tariffs threaten to raise prices.

The New York Fed's new numbers hint at the ways that debt loads and high prices are already gnawing at many people even before new possible pressures on their wallets.

"This report feels like further proof that Americans are generally doing OK financially, but it wouldn't take much for things to go from pretty good to pretty scary," said Matt Schulz, chief credit analyst at LendingTree (TREE).

The share of car-loan debt that recently became delinquent remained just above 8% for the second straight quarter. It was last at that point in late 2010.

Newly delinquent credit-card debt increased to almost 9%. That's after the third-quarter delinquency rate of 8.79% marked the first decline in 30-day delinquency rates in roughly three years.

The New York Fed numbers show Americans added $45 billion in new credit-card debt last quarter, which is just below the $50 billion in new credit-card debt added during the same point in 2023.

But people had roughly 17 million new credit-card accounts in the last quarter, while they had roughly 5 million new accounts in 2023.

It's difficult to know why consumers are opening up so many new cards, New York Fed researchers said. One reason could be that they're looking for new lines of credit. Even though the Fed started cutting its benchmark interest rate in September, it's been hard for consumers to see any rate relief in their credit-card APRs and elsewhere.

The number of active credit-card accounts only paying the minimum balance reached a 12-year high in the third quarter, according to researchers at the Philadelphia Fed.

The latest New York Fed report also echoes recent worries about homeowners' financial health. A rising number of homeowners - especially first-time home buyers - are falling behind on their mortgage payments, with seriously behind delinquencies reaching a nearly two-year high point last year, according to a separate report from Intercontinental Exchange $(ICE)$.

The New York Fed numbers show the share of seriously delinquent debt, or debt that's behind by 90 days, nudged slightly higher from the third quarter to the fourth quarter. The share of home loans behind by at least 90 days was up to 1.09%, from 1.08%.

In the big picture, Americans' balance sheets are looking good if debt-to-income ratios are an indication, New York Fed researchers said. But that also masks specific instances of financial distress that many people face, especially lower-income households, they noted.

One way to look at the issue is by asking who's buying cars now.

There was a noticeable 10% bump in auto purchases from August to December, according to a new Bank of America $(BAC.SI)$ look at customer-spending data. One tactic by car buyers explaining this might be accelerating big purchases that they were already planning to get ahead of any tariff-induced price increases.

The uptick in car purchases came even as monthly auto payments remain high, with nearly 45% of households paying between $500 to $1,000 on their vehicle loans, the Bank of America researchers noted. A strong jobs market means those expensive car-loan payments look "fairly benign for now," they said, "but this does raise some risks if the labor market were to deteriorate."

Last year, an increasing share of people with very good credit scores above 760 were getting car loans, while origination rates were steady for people with average and subprime scores, New York Fed researchers noted Thursday.

Car-loan delinquencies rose for many households in 2024, and even earlier. That included slightly more people falling behind in the third-highest and top-most income bands, the researchers said.

-Andrew Keshner

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 13, 2025 13:58 ET (18:58 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.