Americans are less confident they can make the minimum payments on their credit cards, New York Fed says

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More Americans think they’re in danger of falling behind on their debts.

People’s expectation of missing a minimum payment on a debt — anything from credit cards, to auto loans to student loans and mortgages — increased in September to the highest level since May 2020, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations, released Tuesday. Survey respondents said there was a 12.5% chance on average that they would not be able to make the minimum required payment on a debt, up 1.4 percentage points from the previous month.

Two groups reported the biggest increases in worries about debts in September: Those who are below the age of 40 and who have some college education, and those with an annual household income below $50,000, the researchers said. 

The rise in consumers’ expectation of missing minimum debt payments “was an indication that inflation and higher interest rates are catching up with people, especially people with lower incomes and lower credit scores,” said Ted Rossman, senior industry analyst at Bankrate.com.  

Student loan repayment started this month after pausing for three years. Those who had “some college education” might be the most vulnerable of all, Rossman said. 

“They may have taken on student debt, but they didn’t get the degree to show for it. So they may not be enjoying the higher wages and the lower unemployment rate,” Rossman added. 

At the same time, American consumers felt it was harder to borrow from banks and lenders in September compared to a year ago. More people expected tighter credit a year from now, the survey found. 

The New York Fed survey polled 1,300 households every week in September and looked into how Americans view the overall economy as well as their own personal finances, jobs, and cost of living.

People’s expectation of their household spending growth remained the same in September compared with the previous month at 5.3%. 

Americans expect inflation to continue to grow in the short and medium term, the survey found, but fewer people felt inflation would grow and stay high in the long term. Inflation ticked up slightly in August, with prices on consumer goods and services rising 3.7% from a year ago, according to the Bureau of Labor Statistics. The September inflation number will come out on Wednesday. 

Americans’ credit card debt topped $1 trillion in the first and second quarters of 2023, a record high, according to New York Fed data. As the Fed has raised interest rates to tamp down inflation, borrowing has become more expensive, with the average cred-t card annual percentage rate now at 24.45%, according to LendingTree, the highest since the online lending marketplace started tracking it in 2019. 

Credit-card delinquency rates have increased since pandemic times, but they have been “artificially low” for the past several years because of pandemic stimulus payments and people spending less money.

Also read: More people plan to use ‘Buy Now Pay Later’ for holiday shopping this year — but there’s one ‘troubling sign’

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