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More Cracks in Consumers’ Financial Stability Forming

The amount of household debt held by Americans continues to climb, but now there are more signs that they are having problems making their payments, according to data released yesterday by the Federal Reserve Bank of New York.

While the total amount of household debt has been hitting a new quarterly record for the past 22 quarters, the data on delinquency rates and accounts placed with collection agencies always remained fairly stable. But the data released yesterday does appear to include some warning signs that financial problems may be closer on the horizon that expected.

The percentage of consumers with an account placed with a collection agency increased during the fourth quarter of 2019, according to the data, the first such increase in nearly a year. While still near historic lows, the data represents a small crack that has formed in the wall that is the financial stability of the average American consumer.

Other cracks are forming elsewhere, as well. The percentage of individuals who are falling behind on credit cards and mortgage payments are also on the rise. And the percentage of individuals who are now considered to be “seriously delinquent” on loans, where a payment has not been made for at least 90 days, increased in five of six measured categories — auto loans, credit cards, mortgages, home equity lines of credit, and other. These are the types of debt that will likely end up being placed with a collection agency in the not-too-distant future.

The report did note that the financial problems are becoming increasingly acute for younger borrowers, something agencies may want to consider when developing their collection strategies.

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