Moody’s Report Warns of Growing Financial Strain as Americans Struggle to Meet Debt Obligations

A recent report from Moody’s Analytics has sounded the alarm on a concerning trend in the United States, indicating that a growing number of Americans are falling behind on their monthly credit card and car loan payments. Moody’s suggests that this troubling pattern could be a precursor to broader economic challenges in the near future.

According to the findings, household debt balances surged to $17.29 trillion in the three-month period from July to September, marking a 1.3% increase from the previous quarter. This significant rise also represents an uptick of $3.1 trillion since the last quarter of 2019, just before the onset of the COVID-19 pandemic.

“Consumers are left with a dilemma: they can curb their spending habits or plunge further into debt,” the report stated, emphasizing the potential for an increase in non-residential consumer loan delinquencies.

Credit card balances experienced a substantial growth of 4.7% in the third quarter, reaching approximately $1.08 trillion, while auto loan balances climbed 0.8% to $1.6 trillion during the same period.

The report highlights an increase in borrowers struggling with credit card and auto loan payments, with delinquency rates rising across most loan categories in the third quarter. The expectation is that these rates will continue to climb in the coming months due to economic stress, tight lending standards, and the possibility of consumer overreach.

“The deterioration follows the end of significant government aid and debt forbearance,” Moody’s report explained. “The rise in late payments among credit card and auto loan holders suggests some level of consumer financial strain despite seemingly healthy household financials.”

The dual increase in reliance on debt and delinquency rates is particularly concerning given the current high interest rates. The average credit card annual percentage rate (APR) stands at approximately 20.72%, a record high, while the average new auto loan rate reached 7.4% in November.

As the Federal Reserve pursues an aggressive interest rate-hike campaign to combat inflation and cool the economy, the report underscores the potential long-term consequences for individuals carrying debt to cope with rising prices. The average American, owing $5,000, could face a prolonged repayment period and significant interest costs under the current APR levels.

The Moody’s report serves as a stark warning, urging policymakers and financial institutions to closely monitor the evolving economic landscape and take proactive measures to address the challenges faced by American consumers.