Delinquencies are rising for credit card, auto loans – and it could soon get worse

A growing number of Americans are falling behind on their monthly credit card and car loan payments, a trend that may be a harbinger of economic troubles ahead, according to a new report from Moody's Analytics.

Findings published by Moody's indicate that household debt balances jumped to $17.29 trillion in the three-month period from July to September, up 1.3% from the previous quarter. That also marks an increase of $3.1 trillion since the last quarter of 2019, before the COVID-19 pandemic began.

"Consumers are left with a dilemma: they can curb their spending habits or plunge further into debt," the report said. "The rate of non-residential consumer loan delinquencies will rise."

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Credit card balances grew substantially in the third quarter, surging 4.7% from earlier in the summer to about $1.08 trillion. Auto loan balances also increased, climbing 0.8% to $1.6 trillion.

The report also suggests that there has been an uptick in borrowers who are struggling with credit card and auto loan payments. Delinquency rates rose for most loan categories during the third quarter and are expected to continue climbing in coming months amid economic stress, tight lending standards and possible consumer overreach.

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

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The dual increase in reliance on debt and delinquency rates is particularly concerning because interest rates are astronomically high right now. 

The average credit card annual percentage rate, or APR, is hovering around 20.72%, a record high, according to a Bankrate database that goes back to 1985. The previous record was 19% in July 1991.

At the same time, the average new auto loan rate hit 7.4% in November, up from 6.9% at the start of the year, according to Edmunds, an online trade resource for auto inventory and information. The average used auto loan rate is 11.6%.

The trouble is that if people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if you owe $5,000 – which the average American does – current APR levels would mean it would take about 279 months and $8,124 in interest to pay off the debt by making the minimum payments.

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The rise in balances and delinquencies comes in the midst of the Federal Reserve's aggressive interest rate-hike campaign as it tries to crush stubborn inflation and cool the economy.