Household Debt Keeps Growing, But Delinquency Rates, Volume of Accounts Placed with Agencies Increasing, Too

While consumers have weathered the current economic situation and the pandemic remarkably well, there are now cracks starting to appear in their financial affairs, in the form of rising delinquency rates, and things are likely to get a lot worse before they get better.

The amount of debt that is now starting to become delinquent increased “modestly” during the second quarter, according to data released yesterday by the Federal Reserve Bank of New York, and the number of people who had a debt that was being collected by a third-party agency increased from a historic low in the first quarter of the year. At the end of the second quarter, about 6% of consumers had at least one debt that had been placed with a third-party agency, with an average balance of $1,239. The number of consumers with a debt being collected by a third-party agency had been declining steadily for several years and the increase in the second quarter represented the first time that number had increased in more than a year. That figure peaked at about 15% of consumers back in 2014, according to Fed data.

Delinquency rates on all the different types of debt tracked in the Fed’s report — credit cards, mortgages, auto loans, student loans, and home equity lines of credit — are on the rise after years of decreases. The total amount of household debt increased by $312 billion during the second quarter, and was $16.15 trillion — $2 trillion higher than at the start of the pandemic.

The report broke down delinquency rates geographically, and noted that auto loan delinquency, for example, is concentrated in the Southern states, where the flow of loans that were current but are now delinquent is significantly higher than in other regions of the country. “We are seeing a hint of the return of the delinquency and hardship patterns we saw prior to the pandemic,” the Fed wrote in its report.

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