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  • MAP Asia Pacific Ltd

Opinion : There’s a warning sign in this otherwise hot economy

Americans are piling on debt again. Credit card debt is at an all-time high. A record number of people are paying more than $1,000 a month on auto loans, and nearly every online store is luring customers in by promising they can “buy now, pay later.”

This is a problem because a lot of people no longer have the money to pay back what they’ve borrowed.

Nearly 25 million people are behind on their credit card, auto loan or personal loan payments, according to a Moody’s Analytics analysis of Equifax data. The nation has not seen anything that high since 2009 in the midst of the Great Recession. It’s a warning sign in this hot economy.

It’s plausible the situation could deteriorate, especially if a recession arrives. Many households are also behind on their utility bills: 20.5 million homes had overdue balances in January, according to the National Energy Assistance Directors Association. The number of households applying for help to pay their utility bills is the highest it has been since 2011. Families are already making difficult choices about cutting food or medicine or heat from their budgets. If job losses climb, many will likely lose cars or homes.

Total delinquent consumer loans in the United States

Includes credit card, auto loans and consumer finance loans

There’s a confluence of factors driving this: Inflation remains stubbornly high, generous government support during the pandemic is ending, some families overspent and used car prices dropped so some owe substantially more than a car is worth. There was also a quirk in which many low-income borrowers suddenly had higher credit scores in recent years as they paid off debt. Now lenders are no longer as lenient. The grace periods are getting shorter.

Struggling families have fewer places to turn for help. Food stamp benefits were cut on March 1, slashing $182 a month for the average recipient. Mile-long lines at food banks are back in some parts of the country, and families say they can’t afford meat or more than one meal a day. The more generous Medicaid rules are rolling back on April 1. Student loan debt relief is likely to end in the coming months. Tax refunds that many lower-income families rely on all spring and summer are far smaller this year as child tax benefits have been reduced. Goldman Sachs is warning that lower-income households are facing a substantial hit.

“I’m very surprised at how quickly people are running into financial trouble,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s just going to get a lot tougher from here.”



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